The belief is rising that the US economy’s slow improvement will see the Fed start cutting back on its spending in the next quarter.
As a result, it will be those rising US bond yields that will drive market sentiment because of this belief that the Fed will start cutting back on its current round of quantitative easing, and that means tough times for commodities as the US dollar strengthens.
So, unfortunately for those still clinging to gold, the metal looks like continuing to absorb a lot of punishment as market fundamentals undergo a significant change.
The pressures of April and June are likely to return in the next few weeks. The question is though, will the losses be as great, or has the selling pressure waned?
After that good US June jobs report on Friday night, Comex August gold futures finished the week with a loss of $US11 to $US1,212.70.
Silver also fell on Friday and over the week.
Gold ended a touch higher in after hours dealing early Saturday, our time, at $US1,222 – still down $US30 an ounce on the day.
But oil ended on $US103 a barrel.
Oil rose 6.9% for the week thanks to the problems in Egypt and the coup that no one really wanted to call a coup.
But how long will oil go on rising?
But analysts are worried that the US spot and front market prices are now trading at a rising premium to future months, while the discount to London-traded Brent crude is slowly disappearing.
Analysts point out that the rising US interest rates are undermining the oil market which is only being held up by the events in Egypt. (Egypt, while a moderately ranked producer, isn’t important to oil transport as most of the crude from the Middle East or Asian fields goes either by pipeline to Europe or via the Indian and Atlantic Oceans and the Cape of Good Hope.)
US bond yields rose sharply on Friday after the positive jobs report with yields on 10 year bonds jumping by 0.2% to 2.74%.
Despite that rise and the higher dollar, US shares rose on the day and ended higher on the week in a marked change in sentiment.
When Fed chairman Ben Bernanke first hinted at a September timetable for the easing, shares fell as yields started rising and that was also an early reaction to the more definite comments after the June meeting of the Fed. But sentiment is changing in the US and there now seems to be a more grown up and adult reaction to the good economic news.
But that changing sentiment won’t include gold – Friday’s sell-off reversed some of the gains made earlier in the week on short covering and then the dovish statements from the European Central Bank and the Bank of England that they will keep interest rates at current low levels for some time to come.
That got gold bulls’ blood rushing to their heads as it indicated cheap funds would be available for speculation out of Europe and the UK markets,
But then the solid June jobs report appeared and US bond prices slid and yields soared and the dollar rose (and the euro fell to a near three year low at one stage, as did the Aussie dollar). That saw the gold market optimism evaporate and the metal ended down nearly $US40 an ounce.
Joining gold in its losses Friday, September silver on Comex shed a nasty 96c, or 4.9%, to $US18.74 an ounce. It was down 3.8% for the week.
September copper fell 11, or 3.5%, to $US3.07 a pound, but it still gained 0.4% from a week ago. In London it ended well under $US78,000 a tonne to be up $US39 a tonne for the week.
Shares of Barrick Gold Corp fell 8.1% and shares of Newmont Mining Corp lost 5.6% in US markets as the price fell on Friday. That means the gains made last week by Newcrest and other local gold miners in Australia, as the metal’s price rose, will be tested by Friday night’s big fall.
It was a reminder that the value of the US dollar and US bond yields are the biggest problems for gold investors to confront, along with rising costs.
