By Kitco News
Monday November 14, 2016 15:34
(Kitco News) - A sharp rise in U.S. bond yields across the board created some selling pressure for gold but one international bank sees a scenario where higher interest rates could be positive for gold.
rising U.S. bond yields has caused a spike in mortage rates, which could be good for goldMonday, the yield on U.S. 10-year notes rose to 2.25%, its highest level since January. The rising yield help to drive gold prices down to major support. December gold futures settled Monday at $1221.70 an ounce, its lowest point since May.
Tom Kendal, head of precious metals strategy at ICBC Standard Bank, said that the rise in nominal yields has outstripped inflation breakeven rates, which in turn has increase real yields and weighed down gold prices.
However, Kendal also noted that mortgage rates, which are closely tied to 10-year notes, spiked higher by 50 basis points, making it more expensive for consumers to buy a home.
“A gradual rise in mortgage rates due to an improving economy would be a welcome sign that monetary conditions were returning to normal,” he wrote. “A sudden rise in lending rates, however, will be a shock to the system that underpins a substantial part of the US economy.”
Kendal added that once financial markets get over Donald Trump’s recent presidential election win investors will once again focus on Federal Reserve interest rates. While the Bank is expecting the Fed to raise its interest rate by 25 basis points in December, Kendal added that a slowing housing sector because of higher interest rates could force the U.S. central bank to the sidelines for the rest of 2017.
“We would not be at all surprised if another 12 months of hiatus follows a hike in December. If the real estate market does slow in 2017 that will be yet another headwind to US economic growth and will be a serious impediment to the Fed raising its benchmark rate further,” he said.