Gold Prices Plummet as Global Bond Shock Takes Hold
Gold's August rally has come to an abrupt end due to a global bond shock. The precious metal, which led major commodities in August with a 9.9% gain, fell to $4,327 per troy ounce on Tuesday, marking a two-week low and a 7.8% decline from its 15-week high set just a week earlier.
The sudden reversal is attributed to a surge in long-term interest rates, with Japan's 10-year government bond yield breaking above 3% for the first time in three decades and the UK's 30-year gilt yield climbing above 5.90%, its highest level since 1998.
Eurozone inflation accelerated to 3.3% year-on-year in August, the fastest pace in nearly three years, adding to inflation concerns. Rising oil and food prices, including Brent crude trading near $93 per barrel, one-third higher than a year earlier, also contributed to the pressure on gold.
The factors that supported gold's strength in August, dollar weakness and central bank buying, have not reversed. However, rapidly rising interest rates directly pressure non-yielding assets like gold.