Gold eases after hitting 3-week high as dollar, US yields rise

Dec 28 – Gold prices eased on Thursday, after hitting a more than three-week high earlier, as an uptick in the US dollar and Treasury yields undermined the support from expectations of rate cuts by the Federal Reserve early next year.

Spot gold lost 0.4% to USD 2,069.79 per ounce by 2:20 p.m. ET (1920 GMT), after rising as high as USD 2,088.29 earlier, the most since Dec. 4, when bullion hit its all-time peak.

US gold futures settled down 0.5% at USD 2,083.50.

“There’s not a lot of trading volume right now in any of the markets so that usually causes smaller moves, especially when we’re approaching a big number like an all-time high,” said Chris Gaffney, president of world markets at EverBank.

“The reason prices have gone back near the horizon and rallied again towards the end of the year is all about interest rate expectations and a weaker dollar.”

The dollar index rose 0.3% after hitting a five-month low. Benchmark 10-year bond yields also rose, coming off their lowest levels since July.

US jobless claims rose last week, indicating the labor market continues to cool in the year’s fourth quarter.

Investors are betting on an 88% chance of the Fed cutting rates in March, according to the CME FedWatch tool.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

“We look for higher gold prices over the next 12 months, with weaker economic data and lower inflation in the US forcing the Fed to cut rates,” UBS analyst Giovanni Staunovo said.

On the physical front, China’s net gold imports via Hong Kong rose by about 37% in November from the previous month.

Spot silver fell 1% to USD 24.01 per ounce.

Platinum gained 0.6% to USD 1,002.50, after hitting its highest since June, while palladium dropped 2% to USD 1,129.70. Both autocatalytic metals were on track to log yearly declines.

(Reporting by Anjana Anil and Deep Vakil in Bengaluru; editing by Barbara Lewis, Sharon Singleton, and Aurora Ellis)

Biggest two-month rally in decades rescues beaten-up bond markets

LONDON, Dec 28 – A huge two-month rally in bond prices, powered by expectations that central banks will soon be cutting interest rates, has rescued fixed income markets from an almost unheard-of third straight year of declines.

The US 10-year Treasury yield, the benchmark for borrowing costs globally, has dropped 50 basis points (bps) in December after falling 53 bps in November. Its two-month fall is the biggest since 2008, when the Federal Reserve was slashing rates during the global financial crisis.

ICE BofA’s global broad bond market index, which includes government and corporate debt, has rallied roughly 7% over the last two months — its strongest eight-week period on record, according to LSEG data which goes back to 1997.

The sharp drop in yields, which move inversely to prices, has eased pressure on companies and households as well as housing markets and governments that in October faced the steepest borrowing costs in more than a decade.

It has also been a balm for highly indebted countries such as Italy, where bond yields are poised for their biggest monthly fall since 2013.

HAWKS TURN DOVISH

Central bankers abruptly changed their tone on inflation in December, fueling investors’ rate-cut bets. That followed a blockbuster November, when data showed US and European inflation falling much faster than expected.

“We were surprised by the strength of this rally,” said Oliver Eichmann, head of European fixed income at asset manager DWS.

The Fed’s Christopher Waller and the European Central Bank’s Isabel Schnabel, both previously renowned monetary policy hawks, softened their language in December and acknowledged – in Schnabel’s words – a “remarkable” fall in inflation.

The Fed triggered fresh market euphoria when it used its December meeting to say that rate hikes were over. Fed Chair Jerome Powell notably declined to push back against market bets on deep cuts next year, although the Fed’s “dot plot” envisaged three 25 bp cuts in 2024, compared to the more than 150 bps priced in by markets.

“That was a surprise,” said Jamie Niven, bond portfolio manager at asset manager Candriam. “And it does leave you with the question, what are they seeing that maybe the market isn’t?”

The riskier parts of the bond market, increasingly attractive as investors bet on rate cuts next year, have rallied the most.

Italy’s benchmark 10-year bond yield IT10YT=RR is on track to fall more than 75 bps in December, its biggest monthly drop since the eurozone debt crisis in 2013.

Meanwhile, the spread of junk bond yields over benchmark risk-free rates in the United States and Europe has fallen to its lowest level since the second quarter of 2022.

The two-month jump in bond prices has saved the market from the ignominy of a third year in the red, something not seen in 40 years or more, after two down years driven by inflation and rate hikes.

Bond indexes were in negative territory in October as US growth and inflation kept surprising economists, bolstering the case for higher rates for longer.

The ICE BofA broad bond market index is now heading for an annual gain of around 5%.

Not all investors are convinced their luck will hold.

“It’s gone too far,” said DWS’s Eichmann. He expects more “push-back” from central bankers in the new year and fewer rate cuts than priced in by markets.

(Reporting by Harry Robertson; editing by Dhara Ranasinghe and Christina Fincher)

Oil prices settle down 3% as Red Sea shipping disruptions ease

BENGALURU, Dec 28 – Oil prices fell 3% on Thursday as more shipping companies said they were ready to transit the Red Sea route, easing concerns about supply disruptions as Middle Eastern tensions stay elevated.

The more active Brent crude futures for March delivery settled down USD 2.39, or 3%, at USD 77.15. Brent futures for February delivery, which expired after settlement, fell 1.3% to USD 78.39 a barrel.

US West Texas Intermediate crude futures fell by USD 2.34, or 3.2%, to USD 71.77 a barrel. On Wednesday, oil prices dropped nearly 2% as major shipping firms began returning to the Red Sea.

Denmark’s Maersk will route almost all container vessels sailing between Asia and Europe through the Suez Canal from now, and divert only a handful around Africa, a Reuters breakdown of the group’s schedule showed on Thursday.

France’s CMA CGM is also increasing the number of vessels traveling through the Suez Canal, it said earlier in the week.

“The perception is that the Red Sea route is reopening and will bring supply to market weeks faster,” Price Futures Group analyst Phil Flynn said.

Major shipping companies stopped using Red Sea routes and the Suez Canal earlier this month after Yemen’s Houthi militant group began targeting vessels.

The US Energy Information Administration reported a much larger-than-expected draw in US crude oil inventories last week, which limited price declines for a while.

Later, prices fell further, likely as traders focused on a bulk of the draw coming from the US Gulf Coast region, where refiners are scrambling to clear inventories to avoid high taxes on storage at the end of the year, UBS analyst Giovanni Staunovo said.

US crude stockpiles fell by 7.1 million barrels in the week ended Dec. 22, EIA data showed, while analysts polled by Reuters had expected a draw of 2.7 million barrels. Crude oil stocks at the US Gulf Coast fell by 11.03 million barrels, the biggest decline since Aug, the data showed.

Investors expect interest rate cuts in Europe and the US in 2024, which could boost oil demand.

(Reporting by Shariq Khan, Natalie Grover, Yuka Obayashi, and Sudarshan Varadhan; Editing by Tomasz Janowski, Kirsten Donovan, Barbara Lewis, and David Gregorio)

US 10-year yield touches lowest since mid-July

NEW YORK, Dec 27 – The benchmark US 10-year Treasury’s yield on Wednesday hit its lowest point since mid-July, as investors expect a mild recession and Federal Reserve interest rate cuts in the New Year.

The yield on 10-year Treasury notes was down 9 basis points at 3.796%. It briefly touched 3.820% earlier in the day, its lowest since July 19.

Meanwhile, the two-year US Treasury yield hit its lowest point since May 17 at 4.243%. The two-year’s yield typically moves in step with interest rate expectations

The 30-year Treasury bond’s yield, meanwhile, was down 8.2 basis points at 3.961%.

The decline in yields to cap 2023 comes as investors anticipate a mild economic recession in the US heading into 2024. Treasuries’ yields rise as their prices fall.

“Movement within the rates market during this transition will be choppy,” said Sean Simko, managing director and head of fixed income portfolio management at SEI Investments.

“Global risks of a slowdown in growth are likely to materialize as central banks have steadily increased policy rates to current levels.”

Most traders have penciled in at least three rate cuts from the Fed in 2024. The central bank signaled as much at its December meeting, pointing to gradually easing inflation.

Markets expect rates to remain unchanged at the central bank’s next meeting in January, but have priced in high odds that it will begin cutting in March.

But many traders are typically away from their desks in the last week of the year, during which yield movements should be taken with a grain of salt, Simko said.

“Any movement within the rates market may not be viewed as a true indication of what may come in 2024,” he said.

But much of the timing and extent of rate cuts will depend on economic data, including the strength of labor markets, according to Gennadiy Goldberg, head of US rates strategy at TD Securities.

“If you see the data hold up better than anticipated – if for example, the next payroll number and next inflation print come in a little bit higher – you could still see room for a reshuffling of expectations,” he said.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was last at -44.3 basis points.

“As much as the Fed is trying to signal that they want to engineer a soft landing, we’ll see if the data cooperates,” Goldberg said.

The next significant economic data comes on Thursday, including the latest initial jobless claims.

The US Treasury Department on Wednesday auctioned USD 58 billion in five-year notes, seeing nearly three times that amount in demand. The five-year’s yield was last down 7.3 bps at 3.802%.

December 27 Wednesday 1:41 PM New York / 1841 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills	5.24	5.3988	0.026
Six-month bills	5.0575	5.2767	-0.002
Two-year note	100-3/256	4.2437	-0.045
Three-year note	101-16/256	3.9909	-0.059
Five-year note	102-140/256	3.8023	-0.073
Seven-year note	103-84/256	3.8229	-0.082
10-year note	105-176/256	3.8037	-0.082
30-year bond	113-172/256	3.9649	-0.078

(Reporting by Matt Tracy; Editing by Kirsten Donovan and Barbara Lewis)

Gold hits three-week high on hopes of US Fed cutting rates

Dec 27 – Gold scaled a three-week peak on Wednesday as traders bought zero-yield bullion in anticipation of US interest-rate cuts next year, while a dip in the dollar and bond yields also supported prices.

Spot gold was up 0.5%, at USD 2,076.45 per ounce – its highest since Dec. 4 – by 2:10 p.m. ET (1910 GMT) and on track to gaining nearly 14% in 2023, if gains hold. US gold futures settled 1.1% higher, at USD 2,093.10.

The dollar index hit a five-month low, and eyed its first yearly slide since 2020, making bullion more attractive for overseas buyers. Benchmark 10-year Treasury yields also touched their lowest since July 24.

London’s gold price benchmark climbed to an all-time high of USD 2,069.40 per troy ounce, surpassing the previous record set in August 2020, the London Bullion Market Association said.

“Going into the new year, the theme seems to be from central banks around the world that lower interest rates are coming and with that, gold will have nothing but upside to go here,” said Bob Haberkorn, senior market strategist at RJO Futures.

The Federal Reserve is set to start the new year with fresh evidence that US price pressures are firmly in retreat, with data last week marking the first time since March 2021 that the annual PCE price index was below 3%.

The cooler inflation data emboldened expectations of a rate cut by the Fed in March, with traders now pricing in about a 90% chance, according to the CME FedWatch tool.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

Silver gained 0.1%, to USD 24.225 per ounce, while platinum rose 1.7% to a six-month high of USD 994.91.

Palladium fell 2.1%, to USD 1,149.30, bracing for its worst year since 2008 if losses hold.

(Reporting by Deep Vakil in Bengaluru; Additional reporting by Daksh Grover; Editing by Christina Fincher, David Gregorio, and Pooja Desai)

US bond bulls look to 2024 Fed pivot to sustain searing rally

NEW YORK, Dec 27 – As bonds emerge from a historic selloff, some investors expect better times in the US fixed income market next year – as long as the Federal Reserve’s rate cuts play out as anticipated.

A fourth-quarter rally saved bonds from an unprecedented third straight annual loss in 2023, following the worst-ever decline a year earlier. The late-year surge came after Treasuries hit their lowest level since 2007 in October.

Fueling those gains were expectations that the Fed is likely finished with rate increases and will cut borrowing costs next year – a view that gained traction when policymakers unexpectedly penciled in 75 basis points of easing in their December economic projections amid signs that inflation continued to cool.

Falling rates are expected to guide Treasury yields lower and push up bond prices – an outcome that a broad swathe of investors are anticipating. The latest fund manager survey from BofA Global Research showed investors are holding their biggest overweight position in bonds since 2009.

Still, few believe the path to lower yields will be a smooth one. Some worry the over 100 basis point drop in Treasury yields since October already reflects expectations for rate cuts, leaving markets vulnerable to snap backs if the Fed doesn’t cut soon enough or fast enough.

The market has priced some 150 basis points in cuts next year, twice what policymakers have penciled in, futures tied to the Fed’s main policy rate show. Benchmark 10-year Treasury yields stood at 3.88% last week, their lowest level since July.

Many are also watchful for the return of the fiscal worries that helped drive yields to their 2023 peaks but ebbed in the later part of the year.

“As long as the Fed doesn’t totally have this wrong, we should expect to see some rate cuts next year,” said Brandon Swensen, a senior portfolio manager on the BlueBay Fixed Income team at RBC Global Asset Management. However, “it could be a bumpy path.”

‘BONDS ARE BACK’

US bond year-to-date returns, which include interest payments and price changes, totaled 4.8% as of last week, compared with negative 13% last year, according to the Bloomberg US Aggregate Bond Index.

“Bonds are back,” Vanguard said in an outlook report published earlier this month.

The world’s second-largest asset manager expects US bonds to return 4.8%-5.8% over the next decade, compared with the 1.5%–2.5% it expected before the rate-hiking cycle began last year.

Year-to-date, the Vanguard Total Bond Market Index Fund, with over USD 300 billion in assets, posted a 5.28% return as of last week, up from negative 13.16% last year. PIMCO’s flagship USD 132 billion bond fund, the Income Fund, had year-to-date returns of 8.92% as of last week, from minus 7.81% last year.

Though not everyone sees a recession ahead, most bond bulls are counting on slowing US economic growth and ebbing inflation to push the Fed to cut interest rates.

Eoin Walsh, partner and portfolio manager at TwentyFour Asset Management, said 2023’s rise in yields means fixed income can offer the best of both worlds – income with the potential of capital appreciation.

“From where we are right now, you are going to get your yield on Treasuries and you probably will get a capital gain as well,” he said.

He expects 10-year yields to be between 3.5% and 3.75% by the end of next year.

Others believe some parts of the Treasury yield curve may have already rallied too far.

Rick Rieder, chief investment officer of global fixed income at BlackRock, said the recent rally has left both longer-dated and shorter-dated bonds “quite rich.” “Much of the 2024 return for the very front end and for the very back end … has already been achieved,” he said.

At the same time, concerns over wide fiscal deficits and expectations of increased bond supply could boost term premiums – or the compensation investors demand for the risk of holding long-term bonds. Meanwhile, demand could lag as the Fed and large foreign buyers such as China trim their Treasuries holdings.

The recent bond rally has also eased financial conditions, a measure of the availability of funding in an economy. Some worry that could fuel a rebound in growth or even inflation, delaying the Fed’s rate cuts.

The Goldman Sachs Financial Conditions Index has fallen by 136 basis points since late October and on Dec. 19 stood at its lowest level since August 2022.

“The more markets move to price in cuts, the less urgency the Fed should probably feel about delivering them, because the markets are doing the easing for them,” said Jeremy Schwartz, US economist at Nomura.

(Reporting by Davide Barbuscia, editing by Ira Iosebashvili and Anna Driver)

Oil drops almost 2% as investors watch Red Sea developments

NEW YORK, Dec 27 – Oil prices dropped nearly 2% on Wednesday, eating into the previous day’s gains as investors monitored developments in the Red Sea, where shippers are returning despite further attacks on Tuesday.

Brent crude futures settled down USD 1.42, or 1.8%, at USD 79.65 a barrel. US West Texas Intermediate crude fell USD 1.46, or 1.9%, to USD 74.11.

Danish shipping company Maersk (MAERSK) said it has scheduled several dozen container vessels to travel via the Suez Canal and Red Sea in the coming weeks after calling a temporary halt to those routes this month after attacks by Yemen’s Iran-backed Houthi militia.

France’s CMA CGM also said it was resuming passage through the Red Sea after deployment of a multinational task force to the region.

“I think we have to wait and see whether the increased naval patrols and rerouting of ships lead to a decline in attacks,” said Callum Macpherson, head of commodities at Investec.

Both the Brent and WTI benchmarks settled more than 2% higher in the previous session as the latest attacks on ships in the Red Sea prompted fears of shipping disruption.

The prospect of a prolonged Israeli military campaign in Gaza remained a major driver of market sentiment.

Israeli forces pummelled central Gaza by land, sea, and air on Wednesday, a day after Israel’s Chief of Staff Herzi Halevi told reporters the war would go on “for many months”.

Elsewhere, oil loadings at the Russian Black Sea port of Novorossiisk were suspended because of a storm. However, the Caspian Pipeline Consortium (CPC) terminal near the port was open, Kazakhstan’s energy ministry said.

US crude oil inventories rose last week by 1.84 million barrels, according to market sources citing American Petroleum Institute figures on Wednesday.

US government data on stockpiles is due on Thursday.

Oil output in Russia, the third largest producer in the world after the United States and Saudi Arabia, is expected to be steady or even to increase next year as Moscow has largely overcome Western sanctions, analysts said.

(Reporting by Stephanie Kelly in New York, Robert Harvey and Noah Browning in London and Jeslyn Lerh in Singapore; Additional reporting by Andrew Hayley in Beijing; Editing by David Goodman, Jane Merriman, David Gregorio and Emelia Sithole-Matarise)

US yields dip slightly to open final week of year

Dec 26 – Benchmark US 10-year Treasury yields on Tuesday dipped slightly to open the final week of 2023.

The yield on 10-year Treasury notes was down 0.9 basis points to 3.899%, while the yield on the 30-year Treasury bond was down 0.6 basis points to 4.054%.

Market movement in the last week of the year is typically quiet, as many traders take holidays to cap off the year. US markets were closed Monday due to the Christmas holiday.

The move down in longer-dated Treasury yields comes after the previous week’s economic data pointed to weakening inflation.

Markets are now pricing in interest rate cuts by the US Federal Reserve as early as March next year. Traders see as much as 152 basis points in rate cuts by the end of 2024.

New home price data on Tuesday served as a further sign of encouragement. Home prices rose 4.8% in October from the prior year, according to S&P CoreLogic Case-Shiller’s national home price index, marking the largest annual gain in 2023.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -45.5 basis points.

“The yield curve is flattening,” said Tom di Galoma, managing director and co-head of global rates trading at brokerage BTIG.

“It looks like the Fed will be cutting rates in 2024. My estimate is for that to happen by mid-2024,” he said.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, lost much of its previous gains on the day following strong results of Tuesday’s USD 57 billion Treasury auction, which saw demand nearly three times the amount sought. The two-year yield was last up 1.2 basis points at 4.349%

December 26 Tuesday 1:40PM New York / 1840 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills	5.2225	5.3758	-0.003
Six-month bills	5.075	5.2909	-0.009
Two-year note	100-244/256	4.352	0.012
Three-year note	100-222/256	4.0613	0.005
Five-year note	102-42/256	3.8875	0.000
Seven-year note	102-192/256	3.9174	-0.006
10-year note	104-228/256	3.8986	-0.009
30-year bond	112-8/256	4.0518	-0.008

(Reporting by Matt Tracy; Editing by Chizu Nomiyama and Chris Reese)

Gold firms on bets for early 2024 start to US rate cuts

Dec 26 – Gold consolidated gains on Tuesday, extending its climb for a third session on a weaker dollar and Treasury yields in a slow final week of the year, with traders expecting the Federal Reserve to cut US interest rates in early 2024.

Spot gold rose 0.3% to USD 2,059.79 per ounce by 2:10 p.m. ET (1910 GMT), near a more than two-week high of USD 2,070.39 hit in the last session. US gold futures settled mostly flat at USD 2,069.80.

Several markets were closed the day after Christmas for public holidays and trading is expected to remain muted the whole week.

“You may see speculators climb aboard early on the long side, thinking that the metals markets are due for some more upside action in the first quarter,” said Jim Wyckoff, senior analyst at Kitco Metals.

COMEX gold speculators raised their net long position by 20,365 contracts to 131,749 in the week to Dec. 19, data showed on Friday.

“The likely less restrictive monetary policies in 2024 will mean better commercial demand for precious metals,” Wyckoff said, adding that resurgent inflation or more economic weakness in top bullion consumer China could dampen his bullish outlook.

Traders were pricing in an 85% chance of a Fed rate cut in March, according to the CME FedWatch tool.

The dollar index hovered near five-month lows while benchmark US 10-year bond yields also fell.

Lower interest rates increase the appeal of non-yielding bullion and weaken the US currency, making dollar-priced gold more attractive for those holding other currencies.

“Spot gold should find adequate reasons to remain supported above the psychologically important USD 2,000 level, as long as the Fed can stay the course with its intended rate cuts next year,” said Han Tan, chief market analyst at Exinity Group.

Silver inched up 0.1% to USD 24.19 an ounce while palladium fell 1.9% to a one-week low of USD 1,179.60.

Platinum climbed 0.6% to USD 976.75, nearing highs since Sept. 1 in its sixth consecutive session of gains.

(Reporting by Deep Vakil and Hissay Ongmu Bhutia in Bengaluru; Editing by Chizu Nomiyama and Richard Chang)

Oil jumps over 2% amid Red Sea vessel attacks, rate cut hopes

HOUSTON, Dec 26 – Oil climbed more than 2% on Tuesday to its highest level this month, as further attacks on ships in the Red Sea prompted fears of shipping disruptions and on hopes of interest rate cuts that could boost economic growth and fuel demand.

Brent crude futures settled USD 2, or 2.5%, higher at USD 81.07 a barrel, after rising as much as 3.4% during the session. US West Texas Intermediate crude rose by USD 2.01, or 2.7%, to USD 75.57.

The rally, in thin trade with some markets closed for holidays, added to last week’s gains of about 3% after Houthi attacks on ships worried investors and as the violence in Gaza showed no sign of easing.

“There’s plenty of geopolitical tensions today in terms of the Middle East … and it has given some angst here to the security of the transit of oil and other goods,” said John Kilduff, partner with Again Capital LLC.

Yemen’s Iran-backed Houthi militia claimed responsibility for a missile attack on Tuesday on a container ship in the Red Sea, and for an attempt to attack Israel with drones.

An Israeli minister on Tuesday hinted that the country had retaliated in Iraq, Yemen, and Iran for attacks carried out against it as the war with Hamas-led militants in the Gaza Strip widens to other areas of the region and the Palestinian death toll continues to climb.

Despite concern about the Middle East and the re-routing of ships, actual supply has not yet been affected.

Maersk on Sunday announced the restart of shipping routes through the Red Sea, while France’s CMA CGM is increasing the number of vessels traveling through the Suez Canal, easing concerns to some extent.

Shipping companies had stopped sending vessels through the Red Sea and imposed surcharges for re-routing ships. The Red Sea connects with the Suez Canal, a major shipping route used for about 12% of global trade.

“We have issues in the Red Sea, causing ships to go around the horn of Africa, adding to price and risk,” said Tim Snyder, economist at Matador Economics.

“This could turn out to be a not very good start to 2024.”

Meanwhile, Israel’s military chief, Herzi Halevi, said the war on Hamas in Gaza will likely go on for many months.

Oil also found support from expectations the Federal Reserve will cut interest rates next year. Lower interest rates cut consumer borrowing costs, which can boost economic growth and oil demand.

The dollar index edged lower on Tuesday, within sight of a five-month low of 101.42 struck on Friday. A softer greenback makes dollar-denominated oil less expensive for investors holding other currencies, boosting demand.

Traders’ bets that the central bank will deliver a rate cut of at least 25 basis points in March 2024 stand at 86%, compared with about 21% in November, according to the CME Group’s FedWatch tool.

US crude stockpiles were expected to have fallen by about 2.6 million barrels in the week to Dec. 22., while distillate and gasoline inventories likely rose, a preliminary Reuters poll showed.

(Reporting by Arathy Somasekhar and Georgina McCartney in Houston, Alex Lawler and Florence Tan; Editing by David Goodman, Mark Porter, and Chizu Nomiyama)

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