Gold’s Breakout Continues as Inverted Yield Curves Raise Alarm
Gold prices shot higher on Tuesday, as risk-off traders opted for precious metals and Treasurys amid growing concerns that the U.S. economy was barreling toward recession.
Precious Metals Continue to Rally
Gold for December settlement, the most actively traded futures contract, peaked at $1,554.50 a troy ounce on the Comex division of the New York Mercantile Exchange, where it was just $11 shy from a new six-year high. The yellow metal was last up $14.80, or 1%, to $1,552.00 a troy ounce, according to Bloomberg.
Bullion is up more than $120 per ounce over the past month and $340 over year-ago levels. Aside from bitcoin, it is one of the best-performing assets of 2019.
December silver futures also rose sharply, gaining 49 cents, or 2.8%, to $18.27 a troy ounce.
The gold-silver ratio that is used by investors to determine when to buy or sell precious metals declined almost 2% on Tuesday. That means Gold’s premium over the grey metal has declined.
Precious metals rallied as the dollar continued to soften against a basket of major currencies. The U.S. dollar index slid 0.1% to 97.99.
Inverted Yield Curve Points to Recession
Demand for safe havens pushed bond prices higher on Tuesday, sending U.S. Treasury yields lower. The yield curve everyone is worried about – namely, the 10-year/2-year yield – remains inverted, a phenomenon that has predicted the last five recessions.
The yield on the 10-year U.S. Treasury yield swung back below 1.5% on Tuesday, compared with 1.52% for the 2-year Treasury note. The yield curve widened by as much as 17 basis points earlier this month, according to the official U.S. Treasury website.
Market analysts are also drawing attention to another yield-curve inversion and its likelihood at forecasting recession. According to David Rosenberg, chief economist at the Toronto-based Gluskin Sheff, the 3-month/10-year yield curve has been inverted for the last three months.
“The track record this has had in predicting recessions: 100%.”
The U.S. economy has largely outperformed its major peers since President Trump took office, but the rate of expansion has slowed considerably in recent quarters. The president has called on the Federal Reserve to increase stimulus measures while simultaneously touting the economy’s health. Economic orthodoxy states you only cut interest rates when the economy is performing badly. If President Trump truly believes the United States is experiencing strong economic growth, he would be calling for higher interest rates.
Featured image courtesy of Shutterstock. Chart via Barchart.com.