Precious Metals Review

“Mortgage rates surged to the highest level since 2007, with higher borrowing costs turning the screws even tighter on the quickly cooling US housing market.

The average for a 30-year, fixed loan was 6.7%, up from 6.29% last week, Freddie Mac said in a statement Thursday. Rates tracked a surge in 10-year Treasury yields, which approached 4%
earlier this week.

Historically low mortgage rates fueled the pandemic housing rally, but borrowing costs have more than doubled since starting the year near 3%. The rapid jump has undermined buying power for house hunters and dragged down real estate prices as the Federal Reserve tries to tackle inflation.

“The uncertainty and volatility in financial markets is heavily impacting mortgage rates,” said Sam Khater, Freddie Mac’s chief economist.

Mortgage rates dipped briefly below 5% at the beginning of August, but have now increased nearly 2 percentage points since then. Data released this week showed that home prices in 20 US cities posted a monthly decline in July for the first time since 2012. Seattle, San Francisco and San Diego posted the biggest drops as expensive West Coast markets fall fast.

US pending home sales fell in August for the seventh time this year, dropping to the lowest level since 2011, excluding the immediate aftermath of the pandemic, according to the
National Association of Realtors’ index released Wednesday.

It’s a stark turn after more than two years of a housing boom that pushed real estate prices in the US to record highs. And it’s likely to get worse as rates climb toward 7%, a level
not seen since 2002.

“The huge surge in mortgage rates over the last nine months has squashed many buyers’ budgets, leading to a significant pullback in transactions,” said George Ratiu, manager of
economic research at Realtor.com. “With monetary policy continuing to tighten, mortgage rates are expected to continue climbing.”

“Gold advanced and is set to have the best week since July as Treasury yields continued to retreat from the strongest in more than a decade.

Bullion rose as much as 0.9% on Friday as rates on US bonds declined, though gains were tempered by the dollar’s continuing strength. The Federal Reserve’s favored inflation metric
accelerated by more than forecast in August, highlighting the need for the US central bank to maintain its hawkish stance in coming months. Geopolitical tensions also continued to simmer as Vladimir Putin vowed his annexation of four occupied regions in Ukraine is irreversible.

“Gold is being supported by geopolitical concerns – one of them being Putin’s nuclear threat – and investors increasingly worried about the FOMC’s hawkish actions and how it may break the currency and bond market,” said Ole Hansen, head of commodity strategy at Saxo Bank.

The precious metal has had a volatile week, falling to the lowest in more than two years on the back of the strong greenback, before enjoying its biggest one-day gain in six months after the Bank of England unveiled its bond-buying program.

Still, the traditional haven has lost almost 20% from its March peak, and is set for a sixth monthly decline. The metal could face renewed pressure as traders keep an eye out for more
aggressive tightening from the Federal Reserve, with officials striking a hawkish tone after the latest US economic data.

Federal Reserve Vice Chair Lael Brainard said the US central bank will need to keep interest rates high for some time to bring inflation down, even as she acknowledged the need to
watch global financial-stability risks from rising borrowing Costs.

Spot gold advanced 0.8% to $1,674.10 an ounce at 10:51 a.m. in New York, putting it on track for a weekly gain of 1.8%, the biggest weekly increase in two months. The Bloomberg Dollar Spot Index rose 0.1%. Silver, platinum and palladium all gained.”

“Gold futures climbed on Friday, shrugging off rising inflation in Europe and the U.S., as the dollar traded below a 20-year high reached earlier this week.

Prices for the precious metal, however, were poised to log losses for the month as well as the third quarter.

What's happening
Gold has continued to trade near its highest level in a week despite another batch of worrying inflation data out of the eurozone, which showed consumer-prices are rising at their fastest pace since World War II, one day after an inflation report out of Germany revealed something similar.

Data in the U.S. meanwhile, showed that the personal-consumption price index, a key gauge of U.S. inflation, rose a mild 0.3% in August, but prices are still going up at the fastest pace in 40 years.

Lately, movements in the price of gold and silver have been dictated mostly by the relative value of the U.S. dollar along with rising Treasury yields.

Gold's decline for the month and quarter really has to do with the strength in the dollar, said Jason Teed, co-portfolio manager of the Gold Bullion Strategy Fund , adding that if you look at the U.S. dollar index for the last quarter, gold and currency have been moving inversely to each other.

For the third quarter, gold futures based on the most-active contract trade roughly 8% lower, while the ICE U.S. Dollar Index has gained 7%. The dollar index on Friday is trading below its 20-year high of 114.78, reached on Wednesday.

The dollar has moved up because inflation is higher, and the Federal Reserve can raise interest rates higher than other developed countries in its attempts to tame inflation, making our currency more attractive, Teed, who's also director of research at Flexible Plan Investments, told MarketWatch.

The outlook for gold prices is difficult to gauge, he said, but there's "additional room" for further price declines as long as rates haven't topped out.

Teed emphasizes that he doesn't see gold starting to recover until inflation numbers come down to a point where the Fed can "take their foot off the brakes" and rates either "discontinue" moving up, or come down -- but that's many months off.

Once inflation sees a meaningful turnaround, then there wouldn't be much of a headwind for gold and that may be a good time to buy the metal, he said.”