Published: Thu, April 26, 2018
Money | By Michele Stevens

Gold resumes weakening as both rates and the dollar strengthen

Gold resumes weakening as both rates and the dollar strengthen

The next key technical level for the 10-year yield is 3.05 percent, which would put the yield at its highest level since 2011.

Higher US yields and a stronger dollar weighed on non-yielding gold, with spot prices slipping to a five-week low of $1,318.51 an ounce overnight.

News broke early that Iran's oil minister Bijan Zanganeh said there would be no need to extend a pact between the Organization of the Petroleum Exporting Countries and non-OPEC producers if oil prices strengthened, the ministry's official website SHANA reported.

Also, the apparent easing of Russian Federation aluminium sanctions saw the metal fall over 10% in early NY headlines which triggered hard commodities to crumble across the board and dragged oil lower in the wake.

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Crude oil prices were up amid the prospect of fresh sanctions on Iran and concerns about output from Venezuela. Also, factor in last weeks Saudi jawboning targetting $80 or $ 100 per barrel it suggests prices will remain firm for the foreseeable future and should continue to gravitate higher. The yield has climbed on expectations of a steady USA economic expansion, accelerating inflation and concerns about increasing debt supply. With the Fed no longer buying bonds and investors expecting greater inflation, analysts say higher yields could make bonds more attractive.

"We've said this (3 percent) level would go, and given that everybody is talking about inflation with views to developments in the commodities space - that's where this move is coming from", said Benjamin Schroeder, senior rates strategist at ING.

"Whether this will mark the beginning of a new range or the start of a bear market is the question; or whether it's a welcome buying opportunity", said Rieger of Commerzbank.

The Euro and Pound are getting hammered due to an unwinding of consensus positioning. The euro fetched $1.2176 after sliding to a 1-1/2-month low of $1.2160.

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"It's a big level in the global marketplace, it's a big psychological level", said Justin Lederer, interest rate strategist with Cantor Fitzgerald in NY.

"But with Treasury yields rising, people are worrying we may be peaking on profits, or if GDP growth is peaking and we are now in a situation where markets are getting very nervous", he said, noting the U.S. Federal Reserve appeared to be in no mood to brake its rate-hike program. But there are other negative implications for the Aussie brewing on the back burner. Another reason: inflation is showing signs of picking up, which erodes the value of bonds' fixed payments and leads investors to demand higher yields.

There been increasing maker chatter about an economic slowdown in China which is being viewed United States dollars positive on the surface as Chinese authorities may shift towards weaker yuan policy to buffer the negative growth ( Q2 GDP) impact from deleveraging and trade wars with the US.

"The more interesting move is, if we've hit three per cent, does that open the flood gates?" "We have a lot of supply this week, and that's certainly putting pressure on the market ... the quarterly refundings have been settings records".

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