Gold opened the week with a clear step back. The spot price fell through the 4,300 dollar mark per troy ounce on Monday 14 September and traded around 4,287.70 dollars, down 60 dollars or 1.38 percent from Friday, Kitco reported at 12:01 US eastern time. Along the way the price dropped to 4,253 dollars, its lowest point since August. Silver followed at 63.13 dollars, down 1.92 percent. TradingEconomics arrives at almost identical figures.
What stands out about this Monday is not the size of the decline, which remains modest. It is which level gave way. On Friday Kitco still wrote that gold was holding support around 4,300 dollars. On Monday it no longer did.
US yields edge towards 5 percent
Behind the decline sits arithmetic rather than panic. The yield on ten year US government bonds touched 4.99 percent on Monday, according to Kitco the highest level in nearly three years. TradingEconomics closes the day around 4.95 percent. That 5 percent mark is a number the market has been watching for weeks.
For gold this is directly bad news. Gold pays no interest and no dividend. Someone who buys a US government bond receives close to 5 percent a year. Someone who buys a gold bar receives only the price movement. The higher the yield climbs, the more expensive it becomes to hold gold. According to Adam Turnquist, chief technical strategist at LPL Financial, it is precisely those higher rates and the repricing of monetary policy expectations that weigh on the gold price.
Those expectations shifted sharply over the past week. The US statistics bureau BLS reported on Friday that consumer prices rose 0.4 percent on the month in August and 3.4 percent year on year. Excluding food and energy the increase was 0.3 percent, slightly more than expected. Since then the market has priced in, through the FedWatch tool of exchange group CME, a probability of roughly 87 percent that the US central bank will raise rates on Wednesday.
In euros the decline is smaller
Anyone selling to us is paid in euros, not in dollars. The European Central Bank reference rate moved from 1.1592 dollars per euro on Friday to 1.1551 dollars on Monday. The euro therefore weakened slightly, and that cushions the fall. Converted at those rates, gold lost roughly 1.0 percent in euros on the day against 1.38 percent in dollars. For silver it is about 1.6 percent in euros against 1.9 percent in dollars. Exactly how that conversion works is explained in our piece on gold in euros or in dollars.
Over a longer stretch the picture is calmer than the headline suggests. A week ago, on 7 September, gold stood at 4,388 dollars and silver at 65.62 dollars. Over seven days gold has therefore given up about 2.3 percent and silver about 3.8 percent. It is the fourth week in a row in which both metals lose ground, each time in small steps.
What this means if you want to sell old gold
For anyone with a box of old jewellery, a broken chain or a handful of coins at home, a day like this changes little about the fundamentals. What you receive depends first of all on the weight and the fineness of your items, not on the price of a single afternoon. Which elements count when the value is determined is set out on our page about selling old gold. We publish the current position in euros every working day on the gold price page.
A level such as 4,300 dollars has, incidentally, no meaning at all for the melt value of your own items. It is a number traders watch because other traders watch it too. For a 14 carat chain, only the number of grams of pure gold in it counts.
Gold lost a little over one percent on the day, and slightly less in euros. Moves like that say little about the value of your own items. Have the weight and the fineness determined first, and ask for the price of the day itself.
Silver again falls faster than gold
Silver loses more than gold on the day, and that pattern has held for weeks. Last Thursday more than 5 percent came off in a single session, the day the European Central Bank raised its rate. The reason is the same each time. Silver is a far smaller market than gold, and more than half of demand comes from industry. If the market fears that higher rates will slow the economy, that weighs on silver twice over. What counts for silver cutlery, coins and old jewellery is set out on our page about selling silver.
The Fed decides on Wednesday
The real test comes on Wednesday 16 September at 20:00 Belgian time, with a briefing half an hour later. A quarter point increase is largely priced in and will therefore surprise few people in itself. Attention will go to the Fed’s new projections and to the tone of the briefing. If everything points to further increases, the pressure on gold and silver remains. If the tone turns more cautious, the price can swing back quickly.