Gold Sinks as Dollar Gets Boost From Yellen; European Bonds Fall

  • Yen drops as Abe aide signals tax-increase delay; yuan weakens
  • Emerging-market currency head for worst month since Auguest

Why Gold Is Losing Its Appeal as a Safe Haven

The Fed factor dominated global markets, battering gold, bonds and emerging-market assets, while lifting the dollar.

Bullion fell for a ninth day in its longest losing streak in a year after Federal Reserve Chair Janet Yellen said an interest-rate increase is likely in coming months. The dollar strengthened against all but four of its 16 major peers. Treasury 10-year futures slid the most in almost two weeks, German bunds declined and emerging-market currencies headed toward the worst month since August. European stocks swung between gains and losses, with trading volumes less than half the daily average amid market closures in the U.S. and U.K.

The Bloomberg Dollar Spot Index was poised for its biggest monthly jump since September 2014, having surged as Fed Funds futures showed the odds of a U.S. interest-rate hike by July more than doubled to 54 percent. Yellen said Friday that an improving American economy would probably warrant another increase in borrowing costs “in the coming months,” a view also expressed by several regional Fed chiefs in recent weeks.

“What Yellen said confirmed the Fed is open for a June rate increase, and it’s now data dependent,” said Carl Hammer, chief currency strategist at SEB A/B in Stockholm. “The Fed might be on hold next month due to Britain’s European Union referendum, but then make it explicit there will be an increase in July. Our view is that there’s more room to add to positive dollar bets.”

Yellen spoke after data showed U.S. economic growth picked up more than was previously estimated in the first quarter. Reports scheduled for this week include April personal income and spending, and May payrolls.

Commodities

Gold for immediate delivery dropped as much as 1 percent to $1,199.80 an ounce, a level last seen in February, and is down 7 percent in May, the biggest monthly decline since June 2013. Money managers’ cut bullish bets on the metal by the most this year during the week ended May 24, according to U.S. Commodity Futures Trading Commission data. Silver slid 1.7 percent as of 10:12 a.m. in London, while platinum retreated 0.8 percent as the prospect of higher U.S. borrowing costs damped the appeal of non-interest-bearing assets.

For details of Yellen’s comments on Friday, read here.

Copper futures slipped 0.9 percent in New York, snapping a four-day advance. The London Metal Exchange was closed on Monday.

West Texas Intermediate crude fell 0.3 percent to $49.16 a barrel as Canadian producers moved to resume output after wildfires and before this week’s meeting of the Organization of Petroleum Exporting Countries. Total volume traded was about 50 percent below the 100-day average. Issues including a production freeze will be discussed at the June 2 talks, said Iraq’s Deputy Oil Minister Fayyad Al-Nima, who will head his ministry’s delegation. Oil was headed for fourth monthly gain, the longest winning streak since April 2011.

Currencies

The Bloomberg Dollar Spot Index advanced 0.1 percent, bringing its gain in May to 3.7 percent. Sweden’s krona advanced against all of its 16 major currencies as data showed the nation’s economy continued to expand in the first quarter amid record stimulus from the central bank.

The yen fell as much as 1 percent to 111.45 per dollar after an aide to Prime Minister Shinzo Abe said a sales-tax increase will probably be delayed. Japan released retail sales figures on Monday showing that growth stalled in Asia’s second-biggest economy, bolstering the case for a planned sales-tax increase to be postponed.

The MSCI Emerging Markets Currency Index declined 0.4 percent and is down 3 percent in May, snapping a three-month run of gains. The won retreated 1 percent on Monday. For the month, South Africa’s rand led losses, sliding 9.9 percent.

The yuan dropped as much as 0.3 percent to a four-month low in Shanghai after the People’s Bank of China weakened its daily fixing by 0.45 percent. With the U.S. poised to raise interest rates and pressure building on China to ease monetary policy, cash outflows will accelerate, said Song Yu, China economist for Goldman Sachs/Gao Hua Securities Co. in Beijing.

Stocks

The Stoxx Europe 600 Index added less than 0.1 percent, with trading volumes 63 percent lower than the 30-day average, according to data compiled by Bloomberg.

Belgian postal company Bpost SA fell 2.2 percent after saying it failed to reach an agreement to buy PostNL NV of the Netherlands in a surprise announcement following speculation of an imminent merger. PostNl NV gained 5.8 percent.

Banco Popular Espanol SA added 0.8 percent after Spanish newspaper Expansion reported the lender has orders exceeding 4 billion euros ($4.4 billion) for its 2.5 billion-euro planned capital increase. 

Bayer AG rose 0.7 percent after people familiar with the matter said the chemical company is close to choosing banks to arrange funds for its proposed acquisition of Monsanto Co.

Futures on the S&P 500 gained 0.2 percent, after the benchmark rallied 0.4 percent on Friday to close the week up 2.3 percent at the highest since April 20.

The MSCI Emerging Markets Index slipped 0.1 percent, bringing its decline in May to 3.9 percent, the most since January. Japan’s Topix index climbed 1.2 percent to a one-month high, led by exporters as the yen weakened.

Bonds

Ten-year Treasury futures contracts for September delivery slid 14/32, or $4.38 per $1,000 face amount, to 129 8/32, based on electronic trading at the Chicago Board of Trade.

German 10-year bunds advanced, with yields rising three basis points to 0.17 percent, erasing their three-basis point drop in the previous week. Yields on similar-maturity French bonds rose three basis points to 0.50 percent.

Commodity trader Noble Group Ltd.’s dollar bonds due January 2020 climbed to their highest since November, pushing their yield down by 31 basis points to 15.79 percent. The company announced plans to sell some of its U.S. operations and said Chief Executive Officer Yusuf Alireza has resigned, with two co-heads set to replace him.

"The resignation of the CEO is good news for bondholders as it shows that the board is serious about stabilizing the company’s profile by taking a less aggressive approach,” says Charles Macgregor, head of Asian high-yield research in Singapore at Lucror Analytics. “The sale of the Americas Energy Solutions will generate meaningful cash that should resolve liquidity concerns.”

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