Gold futures logged their highest finish since 2013 on Wednesday after another round of downbeat economic data, and as the temporary inversion of the main measure of the U.S. Treasury yield curve raised the risk of a recession.
“Many theories describe the causal mechanism between yield inversion and recession, but the key point is a lack of confidence in the current interest rate environment—specifically that yields will not be able to sustain their current rates over the long term,” Ryan Giannotto, director of research at GraniteShares, which runs the GraniteShares Gold Trust BAR, +0.93% told MarketWatch.
“This rationale has profound implications for gold. Not only are interest rates expected to fall, but more importantly, a yield inversion signals substantial uncertainty about future expectations,” he said.
Gold for December delivery GCZ19, +0.80% on Comex rose $13.70, or 0.9%, to settle at $1,527.80 an ounce after losing 0.2% on Tuesday. The settlement was the highest for a most-active contract since April 11, 2013, according to FactSet data. September silver SIU19, +1.38% added 29.5 cents, or 1.7%, to $17.28 an ounce.
Gold “remains shielded by various core market themes,” said Lukman Otunuga, senior research analyst at FXTM, in a daily note. “For as long as geopolitical tensions, Brexit uncertainty, global growth concerns and central banks easing monetary policy remain key themes, gold bulls are in control.”
The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -6.64% temporarily traded below the yield on the 2-year note TMUBMUSD02Y, -5.34%, marking an inversion of the most closely followed measure of the curve. The 3-month vs. 10-year measure of the curve has been inverted since earlier this year.
U.S. benchmark stock indexes extended losses after the curve inverted, while gold appeared to find a lift on haven-related buying. Gold had retreated Tuesday as stocks soared following the Trump administration’s decision to delay some tariffs on imports from China that had been scheduled to go into effect on Sept. 1.
Gold’s haven appeal was also reinvigorated by downbeat global data.
China said industrial output saw a 4.8% year-over-year rise in July, slowing from a 6.3% increase in June. Retail sales in China rose 7.6% year-over-year, decelerating from 9.8% in June and coming in below forecasts for 8.5% growth.
Data showed the eurozone economy slowed to a 0.2% growth rate in the second quarter, according to Eurostat, which also reported a 1.6% decline in industrial production. Germany, the eurozone’s largest economy, saw gross domestic product shrink by 0.1% in the second quarter from the previous three months as global trade tensions and a troubled automotive sector weighed.
September copper HGU19, -1.20% fell 3.8 cents, or 1.4%, to $2.592 a pound.
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