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Oct 17 (Reuters) – Gold prices rose more than 1% on Monday after declines in the previous two sessions, as the US dollar and Treasury yields faltered, although risks from looming Federal Reserve interest rate hikes persisted.

Spot gold was up 0.9% at USD 1,656.25 per ounce by 1:41 p.m. ET (1741 GMT), having risen more than 1% earlier in the session and moving away from the more than two-week low touched in the last session.

US gold futures settled 0.9% higher at USD 1,664.

“The dollar’s significantly lower … yields are ticking lower,” said Bob Haberkorn, senior market strategist at RJO Futures, who also noted some “safe-haven demand with heightened geopolitical risks.”

Making bullion less expensive for overseas buyers, the dollar slipped 1.1%, while Treasury yields also retreated.

However, it’s going to be “a struggle for gold to rally even though there’s a lot of question marks out in the world. Investors want safety, but it’s hard not to go into Treasuries with rates going up as fast as they are,” Haberkorn added.

Gold faces headwinds as the Fed is expected to continue on its rate-hiking trajectory and increase its benchmark overnight interest rate by at least 75 basis points at its next policy meeting in November to curb stubbornly high inflation.

Gold prices have fallen 20% since scaling above the key USD 2,000 per-ounce level in March.

Even though gold is seen as a hedge against inflation, rising interest rates dim the appeal of the non-yielding asset.

“In the near term, however, the recovery in risk assets bolstered by signs of stabilising gilts is raising pressure on precious metal shorts, but gold prices need to break above USD 1,750/oz to extend the short squeeze,” TD Securities said in a note.

Elsewhere, spot silver climbed 2.5% to USD 18.72 per ounce after posting eight consecutive daily losses. Platinum rose 1.7% to USD 913.77 and palladium added 0.6% to USD 1,998.82.

“A surplus palladium market in 2023 should ultimately lead to lower palladium prices, although near term the market remains tight,” Heraeus Precious Metals said in a note.

(Reporting by Kavya Guduru in Bengaluru; Editing by Shounak Dasgupta and Paul Simao)

 

HOUSTON, Oct 17 (Reuters) – Oil prices held steady on Monday in choppy trading as fears that high inflation and energy costs could drag the global economy into recession offset China’s continuation of loose monetary policy.

Brent crude futures were down 1 cents, or 0.01%, to USD 91.62 a barrel, recovering from a 6.4% fall last week. US West Texas Intermediate crude was down 15 cents, or 0.2%, at USD 85.46 after a 7.6% decline last week.

“US inflation remains a front topic and with the Fed set to raise rates at least into next year, there are fears that demand destruction will escalate,” said Dennis Kissler, senior vice president of trading at BOK Financial.

China’s central bank rolled over maturing medium-term policy loans on Monday while keeping its key interest rate unchanged for a second month, in a signal that loose monetary policy would be maintained.

Beijing will also greatly increase domestic energy supply capacity and step up risk controls in key commodities including coal, oil, gas and electricity, a senior National Energy Administration official said on Monday.

China will further increase reserve capacities for key commodities, another state official told a news conference in Beijing.

Chinese trade and third-quarter GDP data, along with September activity data, are due to be released on Tuesday, with quarterly growth possibly rebounding from the previous quarter but annual growth threatening to be China’s worst in almost half a century.

Meanwhile, a strong US dollar and the likelihood of further interest rate increases by the Federal Reserve are helping to contain price gains.

St. Louis Fed President James Bullard on Friday said inflation had become “pernicious” and difficult to arrest, warranting continued “frontloading” through larger rate increases of three-quarters of a percentage point.

Inflation in the United States remains stubborn and growth in European Union countries is expected to weaken to 0.5%, International Monetary Fund official Gita Gopinath said on Monday.

“It’s been another turbulent few weeks in oil markets from global growth concerns to super-sized OPEC+ output cuts and it seems they’re yet to fully settle down,” said Craig Erlam, senior markets analyst at OANDA.

“Brent has seen lows of USD 82 and highs of USD 98, so perhaps what we’re now seeing is it finding its feet somewhere in the middle.”

Oil supply is likely to remain tight after OPEC and allies including Russia pledged on Oct. 5 to cut output by 2 million barrels per day while a war of words between OPEC’s de facto leader Saudi Arabia and the United States could foreshadow more volatility.

OPEC+ output cuts attracted funds back to the oil markets, with continued heavy buying of crude oil futures and options for a second straight week.

Easing the supply crunch, oil output in the Permian in Texas and New Mexico, the biggest US shale oil basin, is due to rise by about 50,000 barrels per day (bpd) to a record 5.453 million bpd in November, the US Energy Information Administration (EIA) said in its productivity report on Monday.

(Additional reporting by Noah Browning in London, Mohi Narayan in New Delhi and Florence Tan in Singapore; Editing by Susan Fenton, Kirsten Donovan, David Goodman, Ed Osmond, Paul Simao and David Gregorio)

 

LONDON, Oct 14 (Reuters) – British Prime Minister Liz Truss and new finance minister Jeremy Hunt will have to do a lot more than Friday’s U-turn on corporation tax to restore Britain’s credibility with financial markets after three bruising weeks.

Truss and Hunt, a former foreign minister, will be looking to Oct. 31 – the date of the government’s medium-term budget plan announcement – as a moment to win back the trust of investors.

The pound and British government bond prices rose on Thursday and Friday in anticipation of the policy shift, but they retreated after Truss gave a short news conference on Friday, which underwhelmed analysts.

“Undertaking a U-turn that is forced doesn’t really give the impression that Liz Truss is driving forward with a credible policy plan but rather reacting to developments as they unfold, which itself doesn’t engender much confidence,” said Richard McGuire, head of rates strategy at Rabobank in London.

As Truss spoke on Friday gains made in anticipation of the corporation tax U-turn faded.

Ten-year gilt yields were 40 bps above session lows hit earlier on Friday, also pushed up by moves in bond yields globally. This puts them some 80 bps above their levels before the government’s mini-budget on Sept. 23 that triggered the recent turmoil.

The pound fell more than 1% against the dollar and remains 0.6% below its pre-Sept. 23 levels.

Investors and analysts said the reinstating of a previously scheduled corporate tax hike did little to resolve the challenges the “mini-budget” had originally introduced.

Paul Dales, chief UK economist at Capital Economics, called Friday’s move a “mini-U-turn,” noting there were still 25 billion pounds (USD 28.07 billion) of unfunded tax cuts remaining, down from 45 billion pounds in the original plan.

Without further changes the Office for Budget Responsibility – Britain’s fiscal watchdog – will say a 43-billion-pound hole in the public finances will need to be filled to put the debt-to-GDP ratio on a falling path in three years, he estimated.

Focus also turned to growing political instability with the fourth finance minister in as many months appointed in a country grappling with a cost-of-living crisis, and some questioned how long Truss herself could stay in office.

“Markets are potentially seeking out a hard reset back to square one. Like we’ve seen in Greece and Italy, the market can force a change of leadership if necessary,” said Janus Henderson portfolio manager Bethany Payne.

UNDERWHELMED

Britain’s mini-budget three weeks ago triggered some of the biggest ever jumps in British bond yields, exposed vulnerabilities in the pensions sector — undermining the country’s financial stability.

Sterling, already hurt by a strong dollar, fell to record lows, creating another headache for the Bank of England which is has accelerated the pace of its interest rate increases in a bid to tackle an inflation rate running at nearly 10%.

The BoE was also forced to carry out a round of emergency bond-buying which ended on Friday, leaving many investors anxious about what might happen next week.

“These sudden changes of policy both from the government and the central bank raise uncertainty for market participants potentially stalling or deterring investment, which has been weakening since Brexit,” said Ken Egan, director of European sovereign credit at Kroll Bond Rating Agency.

“How it impacts liquidity on the gilt market going forward is something we are monitoring closely.”

Nomura said sterling’s decline was unlikely to slow until economic growth rebounds. It forecasts a fall in sterling to USD 0.975 by year-end. The pound was trading at around USD 1.1191 and is already down 17% against the dollar this year.

NatWest Markets also suggested Friday’s announcement would do little to tame gilt yields. A roughly 20 billion-pound reduction in funding needs over the next two years — Friday’s measures are expected to raise 18 billion pounds — would be worth only 30 bps off the 10-year gilt yield, which has already been more than priced in, its economists said.

Rabobank’s McGuire said pressure on UK assets could lead the BoE to re-intervene in the bond market or delay its quantitative tightening, bond-selling plans.

Investors may need more reassurance, especially given the scale of Britain’s six-month, 60 billion-pound energy support package, fund managers said.

“Thus far, the investment community has been underwhelmed by the move on corporation tax and is looking for a more substantive ‘U-Turn’ in order to restore fiscal credibility,” said Mark Dowding, chief investment officer at BlueBay Asset Management.

“A windfall tax to reduce the cost of the energy price cap will be required along with further steps,” he added.

(USD 1 = 0.8908 pounds)

(Reporting by Yoruk Bahceli, Dhara Ranasinghe, Nell Mackenzie, Harry Robertson, Editing by William Schomberg and Jane Merriman)