Rapidly rising bond yields push gold price to multi-week lows

The gold price fell to a five-week low of a good $1,170 per troy ounce yesterday and is continuing to trade only marginally above this mark this morning. In euro terms, gold dropped briefly below €1,040 per troy ounce yesterday, thus once again hitting the lows it saw in early May. The steep rise in bond yields is weighing on prices: at their peak, yields on ten-year German government bonds reached 1%, their highest level in more than eight months. They were still at 0.5% at the start of the week. 

Yields in the US also rose, albeit not as sharply as in Europe. At more than 2.4%, ten-year US Treasuries likewise recorded their highest yield level in eight months. Robust US labour market data this afternoon could drive yields up even further and thus put additional pressure on gold. This is because higher bond yields make holding gold less attractive because gold does not yield any interest itself, says Commerzbank. 

ECB President Draghi contributed to the sell-off on the bond markets in the sense that he was unable to offer any reassurance at Wednesday's ECB press conference, explaining instead that the latest volatility on the bond markets was due in part to positioning and a lack of liquidity. Meanwhile, the issue of an imminent Greek default has been dealt with for the time being, thus eliminating one factor which could potentially have lent support to the gold price. A payment that Greece was due to make to the IMF today will be bundled with all subsequent payments due this month, and will not have to be made until 30 June. It will be interesting to see what ideas Greece and its creditors manage to come up with by then to prevent the Southeast European country from defaulting, adds Commerzbank.