Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinGold dipped 0.2% to finish near $1,781 as rising Treasury yields and a stronger dollar undercut demand for alternative assets. The metal had rallied 1.1% over the two previous sessions on growing demand for inflation hedges.

Beleaguered China Evergrande Group, one of the largest real estate developers in Asia, cancelled plans to sell a majority share of its property management group, renewing worries about possible default and financial contagion. China's highly leveraged property sector constitutes roughly a quarter of its economy.

The dollar rose more than 0.2% against major rivals, especially commodity currencies like the New Zealand and Australian dollar, as Forex traders shifted toward the perceived safety of the US currency. Rising inflation expectations also lifted the buck as traders speculated that higher rates will come sooner than expected from the Fed.

A key measure of US inflation expectations surged to the highest level since 2005. The St Louis Fed's 5-year breakeven inflation rate, derived from Treasury Inflation-Protected Securities, jumped to 2.77% yesterday. In March 2002 it was merely 0.16%.

Benchmark 10-year Treasury yields jumped to just under 1.7%, the highest since May, on the combination of higher expected inflation and the pending taper of monetary easing. The Fed is expected to reduce quantitative easing by $15 billion per month in November or December, ending the emergency program entirely by mid-2022.

While rising inflation is typically bullish for gold as a hedge against loss of purchasing power, the higher yields that it triggers can create headwinds for the metal by increasing the opportunity cost for holding it instead of bonds as a safe-haven asset.

The other precious metals were also lower, with silver dropping 1.1% while platinum and palladium lost 0.3% and 3.1%, respectively.

At the Comex close: December gold dipped $3 to $1,781.90; December silver dropped 27 cents to $24.17; January platinum slipped $2.60 to $1,049.70; and December palladium fell $63.40 to $2,018.10 an ounce.