Gold $2500 as Yield Curve Ends Recession Warning (2024)

The GOLD PRICE dipped below $2500 per Troy ounce on Wednesday as the Dollar rose together with global share prices after the US Treasury bond market snapped a record stretch of inverted yield curve.

While the annual yield offered to buyers of 10-year US Treasury bonds today edged back above the yield offered by 2-year bonds, the gap ended Tuesday night at zero, ending an unbroken 25-month stretch of the yield on 2s running higher than 10s.

More typically, longer-term debt offers a higher rate of return, and a zero or inverted yield curve suggests that central banks will need to cut overnight interest rates in the near future. It has preceded each of the past 6 recessions in the USA.

When they arrived however, those economic downturns – marked by the vertical gray bars on the chart below – coincided with a steepening of the 10-2 yield curve as it un-inverted and rose, closely tracked by the rate of unemployment.

"America’s recession signals are flashing red. Don’t believe them," says a headline in the latest Economist magazine.

But "two-year yields are currently sitting below 4% versus the Federal Funds Rate of 5.5%," says analysis from consultancy SFA Oxford for German bullion refining and technology group Heraeus, "suggesting that the next few interest-rate cuts by the Fed are now priced into money markets.

"With the recent rise of gold" to record highs above $2500, those cuts are priced-in to "perhaps the precious metals markets, too."

Last week's huge downward revision to US employment figures – slashing a cumulative 0.8 million jobs off the data originally reported for the 12 months ending in March – was "another indicator that a recession's on its way," says a strategist at one US futures brokerage, predicting that the Fed will start to cut rates "further than what was expected" at next month's meeting.

Consensus betting in the futures market today said the Fed will slash its key interest rate by 100 basis points to 4.34% by Christmas, according to data from the CME derivatives exchange.

With gold prices slipped to a 4-session low of $2498 per Troy ounce, the Dollar on Wednesday rallied further on the currency market from last week's 13-month lows, while copper dropped from yesterday's 5-week high after Australian miner BHP Group (LON: BHP) slashed its prediction for this year's demand growth in world No.2 economy China.

Crude oil meantime halved the rebound from 3-week lows it made on news of western Libya's government shutting oilfields in Africa's No.3 producer nation, trading 6.5% higher for the year so far.

Priced in the Dollar, gold has now gained 21.5% in 2024 to date. That beats rich-world stock markets (+15.2%), the Nasdaq 100 index of US tech stocks (+18.4%) and the S&P ex-Information Technology index (+13.9%) but lags silver prices – now trading 25.7% higher from New Year's Eve – as well as so-called cryptocurrency Bitcoin (+35.7%) and AI chipmaker Nvidia (Nasdaq: NVDA), now up 166.4% so far in 2024 ahead of tonight's much-anticipated quarterly earnings report.

"Wall Street expects Nvidia's earnings per share to surge 137% year over year," says a note on Fool.com, but "an earnings beat seems probable, given that the company has exceeded the consensus earnings estimate in 14 of the last 16 quarters."