Gold Sags on Rise in Bond Yields, Silver Plunges on Volume Spike

Updated on
  • Silver futures drops in early-hours volume surge on Comex
  • Gold futures head for fifth weekly loss as yields increase

Why Gundlach Thinks the Bond Wipeout Has Just Begun

Precious metals are getting beaten up by the bond rout.

Gold futures posted their fifth straight weekly loss and silver futures sagged to the lowest in 17 months in heavy trading. An increase in Treasury bond yields, coupled with concern further gains may be in store, pressures non-interest bearing assets. A better-than-expected U.S. payrolls report also dented precious metals.

Gold futures for August delivery fell 1.1 percent to settle at $1,209.70 an ounce at 1:40 p.m. on the Comex in New York. The metal has lost 2.6 percent this week in the longest weekly slump since December.

Silver futures plunged as much as 10 percent to $14.34 an ounce, the lowest since February 2016. More than 5,000 silver futures contracts were traded in a single minute on the Comex in New York at just after midnight London time. The spike in volumes called to mind a similar increase in gold trading last week.

The increase in volatility triggered the so-called “velocity logic,” a safeguard set in place by CME Group, pausing the silver futures market for 10 seconds, to allow liquidity to come back into the market, spokesman Chris Grams wrote in an e-mail.

After years of largesse, central banks are moving in sync to tighten policy, boosting yields, curbing liquidity, and hurting some assets including precious metals.

“Higher bond yields translate to a higher opportunity cost for holding gold,” John Sharma, an economist at National Australia Bank Ltd., said by email. “The sell-off in bonds led to a spike in government bond yields, as traders are pricing in an end to easy liquidity.”

Gold futures initially pared losses after the U.S. payrolls report, which showed U.S. hiring picked up in June while wage gains disappointed yet again. The hiring gain and slower wage growth presents a puzzling mix for policy makers.

“Overall, gold is trading on the beat of the non-farm number and it’s just making people think that the Fed will continue to be hawkish,” Ryan McKay, a commodity strategist at TD Securities in Toronto, said in a phone interview.

Following two rate rises this year, Federal Reserve policy makers are scrutinizing data to see whether further hikes are warranted. Minutes from the European Central Bank’s latest meeting showed officials leaving the door open to removing a pledge to buy bonds.

“In order for central bankers to say things like this and eventually do something like that, it does mean that the global recovery is still on track and risk sentiment is still strong,” said Barnabas Gan, an economist at Oversea-Chinese Banking Corp. “Talking about precious metals in particular, gold being a safe haven, the improved growth sentiment, risk sentiment in the global markets is a very, very strong indicator for lower gold prices.”

The yield on 10-year Treasuries added 1 basis point to 2.38 percent, after climbing 4 basis points on Thursday and gaining in June for the first increase in five months. DoubleLine Capital Chief Executive Officer Jeffrey Gundlach, whose firm oversees $109 billion, says that 10-year yields are on course to move toward 3 percent this year.

In other precious metals:

  • Platinum and palladium fell on the New York Mercantile Exchange.

— With assistance by Ranjeetha Pakiam

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