Gold below $1300

Quotes of gold fell sharply in trading on Tuesday, losing more than $15, overcame key support for 1300 and reached $1292 per troy ounce by the end of the session.
The yield of US ten-year bonds rose to a maximum over the past seven years, reaching a growth rate of 3.05%. For the first time since 2008, the income from investments in US government securities has become comparable to the yield of the stock market. Retail sales in the US grew by 0.3% in April, as predicted. On an annualized basis, retail sales grew by 4.7%, while expenses outstripped inflation, which was 2.5%. From the speeches of representatives of the Fed in recent days, it was possible to conclude that the regulator can raise the interest rate above 3%, which will lead to even greater growth in yield bonds.
The World Bank published its forecast for 2018, according to which the price of gold could strengthen by 3% due to the increased investment demand for the asset, primarily from the Central Banks of different countries. In the medium term, demand for precious metals will decline due to the improvement of the overall political and economic situation in the world and the growth of interest in alternative investments.
Gold for the first time in a few months managed to overcome the lower limit of the trading range of 1300 dollars. The development of further impulse of decline will depend on the nearest economic releases of the US and further geopolitical conflicts in the Middle East.

Interest rates on 10-year US government bonds again over 3%

Interest rates on 10-year US government bonds rose again above the exceptionally high level of 3%. This has led to a new appreciation of the dollar against other major currencies, and especially against European currencies.
Interest rate hikes are in the midst of new concerns about the breakdown of US-China talks. There are concerns that trade clash and war between the two sides is inevitable.
This is expected to trigger a rise in inflation and hence lead to a stronger rise in interest rates than current expectations.
Otherwise, the rise in the dollar has already had a very negative impact on the levels of metal trade. Gold went back to trading at $1,310 and platinum and silver fell to $903 and $16.30 per ounce.
Interest rates on 10-year US government bonds rose 2.3 basis points to 3.018 per cent on an annual basis, while those on 30-year bonds added 1.9 basis points to 3.148 per cent on an annual basis.
The popular interest spread between 2 and 10-year bonds remained at a level of 46.6 basis points, or close to its lowest levels in nearly a decade.
It is precisely the potential reversal of the interest rate curve, James Bullard warned yesterday. According to him, the interest rate curve may gain a negative slope at the end of this or early next year.

The US dollar and the US indices ended Friday with declines

The US dollar ended the last day of last week with a loss, in line with the US indices. The latter ended at their lowest values ​​for the day as a result of skepticism about Trump's tax reform.
Interest on US government bonds declined as well as those in 10-year German bonds, as a consequence of risk exclusion on the part of investors.
Good data on US home construction in October raised investor stakes for further interest rates, at the Fed meeting in December.
The dollar index fell 0.28%, with the euro adding 0.2% to 1.1793 at the end of last week.
The blue Dow Jones Industrial Average index lost 100.12 points, or 0.43% to 23,358.24 points, while the S&P 500 fell 6.79 points, or 0.26% to 2 578.85 points. Technological Nasdaq Composite lost 10.5 points, or 0.15% to 6 782.79 points.
Two-year interest on US bonds reached a new nine-year high at 1.73%.

Gold slows down its decline

Gold fell on Friday after interest on US bonds rose. Losses, however, were limited by the weakness of the stock market and the dollar, which declined due to the uncertainty surrounding the US tax reform.
Increases in US bond interest rates have put pressure on gold, reducing the attractiveness of the metal.
The spot price of gold fell 0.7 percent to 1 275.6 dollars per ounce at the end of the week. It reached the highest value of $1,288 on Thursday, prompting analysts and traders to talk again at $1,300 or even more.
However, it was quickly overcome on Friday and almost all of the growth was offset.
Gold futures with delivery in December fell by 13.3 dollars, or 1% to 1 274.20 dollars per ounce.

Traders do not trust the Fed

The Fed raised the interest rate this month by continuing to claim to raise it once more during the year. It seems, however, that traders do not really believe the Fed, at least judged by one graphics.
Interest rates on two-year bonds are traditionally those that respond quickly to the Fed's decisions and expectations of future interest rates.
Although the Fed signaled a further rise in interest rates this year, interest on 2-year bonds did not make any changes. That means, that investors do not believe that we will see any such action from the reserve.
Here is what happens on the graphics provided by Societe General:

Or as we see - absolutely nothing.

Fed on its way to $2 trillion mistake? (2)

Some experts say that this way of thinking is not particularly good overall. Because the Fed's balance sheet consists largely of mortgage bonds expiring in terms of whether people will choose to pay their debts. As a result, the Fed may lose control of an important tool in its policy if a large percentage of Americans decide, surprisingly, to close their mortgage loans.
The question arises as to why the Fed will try to reduce its balance?
The very act, threatening future economic development and by itself, can have a destructive impact on the economy, which eventually leads to new stimulus measures, recession and a new balance.
Some experts argue that with its current record balance, the Fed will have difficulty reacting to future shrinking of the economy in the direction of its monetary policy. Changing the latter policy itself may, however, jeopardize the stability of the economy.
Overall, it can be said that the option of maintaining a neutral balance-sheet policy may be the better option for the Fed. What will happen, however, is yet to be seen.

Fed on its way to $2 trillion mistake? (1)

Later this, or early next year, the Fed is expected to resort to a strange maneuver - a reduction in the balance of holdings of US bonds.
The securities were bought over the last decade to "pump the liquid" into the market, stimulating the economy, lending and low interest rates.
What, however, will mean a reduction in the Fed's balance sheet?
In general terms, the reverse of the process of buying of government bonds during the crisis or liquidity out of the market. In itself, the action will lead to an increase in interest rates.
The decrease is expected to be high. The Fed's current asset balance is at more than $4 trillion, and according to some experts it is appropriate to cut it by half, or about $2 trillion, over the next few years.
The Fed's plans are to gradually reduce the balance by simply not renewing current bonds at their expiration.

The Fed can start reducing assets on the balance sheet this year

The Federal Reserve may begin to cut its balance from the current $4.5 trillion this year, sooner than many economists expect, the head of the Federal Reserve Bank of New York, William Dudley, said while giving the most comprehensive answer to the question, which bothers financial markets.
Most economists, interviewed by Reuters and the Fed, expect that the US central bank will begin to reduce its assets on its balance sheet next year, which would cause lower bond prices. Dudley's comments pushed the dollar's exchange rate on Friday's trading to a decline to the session low against the Japanese yen.
The Fed has accumulated a record volume of mortgage securities and US Treasury bonds after the financial crisis of 2007-2009 during three rounds of "quantitative easing", designed to stimulate investment, hiring workers and economic growth. The regulator does not buy new bonds, but replenishes its portfolio.