Gold Jumps $60; Is China Behind the U.S. Bond Market Moves?

Source link: Gold Jumps $60; Is China Behind the U.S. Bond Market Moves? At a glance: Gold rose about $60 in Asian trading as the 10-year Treasury yield fell from its peak after inflation data showed a rise above 4%. A Bloomberg report that China may be holding U.S. bonds through Canada remains unconfirmed. Lower bond yields are good for gold, but renewed expectations […] Source site: Safir Arjan

Gold rose around $60 in Asian trading and the yield on 10-year Treasury bonds dropped more than 4 percent from its peak after the release of inflation data.

Bloomberg's report about the possibility of China holding US bonds through Canada has not been confirmed.

Lower bond yields benefit gold, but renewed expectations for higher interest rates from the Federal Reserve could weigh on its price.

Gold increased around $60 in Asian trading; At the same time, the yield on the 10-year US Treasury bond retreated more than 4% from its peak after the release of inflation data. A Bloomberg report on the possibility of China secretly holding US debt through Canada has also reduced concerns about foreign demand for these bonds.

Gold bounces back after bond yields jump

The return of the gold price shows that the markets may have overreacted to the consumer price index (CPI) statistics; Now, the drop in treasury bonds after the release of the data also seems excessive. For gold, the determining factor is not just price, but the metal's relationship with bond yields: as long as 10-year bond yields continue to decline, gold is supported; However, the metal is still vulnerable to a renewed increase in expectations to raise interest rates from the Federal Reserve.

The simultaneity of the fall in bond yields with the weakening of the US dollar can strengthen the rise of gold; Therefore, the dollar index is important to confirm this trend. US market trading will show whether this price increase will continue or not.

Gold and Treasuries benefit from the same takeaway: Maybe China won't sell US debt and just hold it elsewhere.

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Inflation report and changes in bond yields

Gold rose around $60 in Asian trading, and the yield on the 10-year US Treasury bond also fell more than 4% from the peak it hit after Wednesday's higher-than-expected inflation data. The two movements appear to be related, and Bloomberg's report on China's possible secret holding of US debt has helped boost both trends.

The jump in bond yields came after the US consumer price index showed headline inflation at 3.7 percent and core inflation at 2.6 percent in September; Both figures were slightly higher than forecasts. Following the release of the data, Citi called for the Federal Reserve to raise interest rates in December. Since that peak, Treasuries have recouped much of their losses.

The possibility of keeping American bonds from Canada

Part of the market's support appeared to stem from a Bloomberg report that said Canada's holdings of U.S. Treasuries had risen to about $600 billion, despite a tariff war with Washington. Some investors suspect that China is behind the increase, holding US bonds through custodian banks outside the country to hide its true role in financing the US budget deficit. These claims have not been verified.

The implications of this for the bond market are clear: China's official holdings of US Treasury bonds have been declining, and this issue has raised concerns about the withdrawal of one of the largest foreign buyers, in a situation where US borrowing is high. Foreign demand for Treasuries may be more stable than the main figures suggest if China has merely changed its holdings rather than selling them. This withdrawal reduces one of the factors that previously raised bond yields.

Gold benefits from this trend. This metal does not pay interest to its owner; Therefore, a decrease in the yield on treasury bonds lowers the return that investors forgo by holding gold. Usually, when bond yields fall, gold prices rise. For this reason, the withdrawal of yield from the peak after the release of inflation statistics gave gold the opportunity to compensate for part of its decline.

The China report is probably not the only influencing factor. The increase in geopolitical tensions related to Iran and concerns about the heavy borrowing of companies active in artificial intelligence infrastructure have probably strengthened the demand for safe assets; However, this factor has not been very effective in Trump's war so far. However, the link between bond yields and gold seems to be the clearest driving factor. The next test is whether bond yields can stay on the downside. A rebound in yields, for example by strengthening expectations of a Fed rate hike, is likely to put pressure on gold once again.