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Metals Stocks: Gold edges lower to start September’s final week as Treasury yields climb

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Gold futures edged lower Monday morning, retreating somewhat in the final week of September as yields climbed and investors continued to react to the Federal Reserve’s signaling that it will taper purchases of billions in government debt and mortgage-related bonds as the U.S. economy recovers from COVID.

December gold
GCZ21,
-0.10%

 
GC00,
-0.10%

was trading $2.60, or 0.1%, to touch $1,749.20 an ounce, following a weekly gain for bullion of 30 cents or less than 0.1%. Meanwhile, silver for September delivery
SIZ21,
+0.94%

was up 15 cents, or 0.2%, at $22.58 an ounce, after gold’s sister metal posted a 0.4% weekly rise on Friday.

Monday’s trade for precious metals comes against the backdrop of steadily climbing yields, with the 10-year benchmark Treasury note
TMUBMUSD10Y,
1.495%

near 1.5%, representing the highest rate since the start of July and the longer-date 30-year Treasury bond
TMUBMUSD30Y,
2.022%

trading above a psychologically significant level at 2%. Bond yields and prices move in the opposite direction.

Higher rates for government debt can compete with precious metals, such as gold and silver, which don’t offer a coupon.

Anticipation of a reduction of the Fed’s purchases of $80 billion in Treasurys and $40 billion in mortgage-backed securities, in a process referred to as tapering, has put pressure on demand for Treasurys, pushing yields higher.

However, likely capping any potential declines for bullion and silver are worries about the outlook for highly leveraged Chinese property developer Evergrande, which was blamed for roiling global markets last week. Reports indicate now that the company which has some $300 billion in debts, has failed to make key payments due last week, with a further slug of its debt obligations coming due soon.

“Gold prices have risen after China’s Evergrande failed to make a payment on offshore bonds, with additional payments due this week. Because of the uncertainty surrounding this situation, investors have migrated to gold,” wrote Naeem Aslam, chief market analyst at AvaTrade in a daily note.

“However, gold’s gains resisted a rise in 10-year Treasury bond yields after the Fed hinted at commencing the withdrawal of its massive stimulus program in November,” the AvaTrade analyst wrote.

“A rise in treasury yields raises the opportunity cost of holding gold, causing investors to shift to other forms of investment,” Aslam said.

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