Currency Strengthens Due to Rise in Bond Interest Rates
In a surprising turn of events, the US economy posted better-than-expected news on Thursday, which was hawkish for Federal Reserve policy and weighed on gold price today. This dip in gold prices was reflected in the closing of December gold (GCZ25), which ended the day down by 1.06%.
The strength of the US economy was evident in various sectors. The US Sep Philadelphia Fed business outlook survey rose to an 8-month high of 23.2, indicating a robust economic growth. This, coupled with a rise in T-note yields and a stronger-than-expected Philadelphia Fed business outlook survey, led to the dollar adding to its gains on Thursday.
The dollar's strength was also felt against the yen, with USD/JPY (^USDJPY) rising by 0.59% on Thursday. This rise was further boosted by a rally in the Nikkei Stock Index to a new record high, which reduced safe-haven demand for the yen. Consequently, the yen fell to a 1-week low on Thursday.
The stronger dollar also put pressure on precious metals prices, including silver price today. December silver (SIZ25) closed the day down by 0.08%.
Higher global government bond yields on Thursday further undercut precious metals prices. This trend was particularly noticeable in Germany, where the finance agency plans to raise 90.5 billion euros ($107 billion) in Q4, 15 billion euros more than the agency projected in December. The German government also plans to borrow about 20% more than originally planned in Q4 to fund infrastructure and armed forces spending.
The euro, meanwhile, is under pressure due to a stronger dollar and fiscal concerns in Germany. As a result, EUR/USD fell by 0.20% on Thursday.
Interestingly, gold prices continue to receive safe-haven support from uncertainty tied to US tariffs and President Trump's attacks on Fed independence. Despite the recent dip, the markets are still pricing in a 93% chance of a -25 bp rate cut at the next FOMC meeting on Oct 28-29.
A potential development to watch is the scrutiny on Stephen Miran's role as a Fed governor while serving on the White House Council of Economic Advisors. The economist Adriana Kugler, whose position became vacant when she announced her resignation in early August, might suspect Miran of keeping his seat.
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