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Gold Prices Hit 3-Month Low as Trade Deal Hopes Spur Risk Assets

Investing.com -- Gold prices tumbled to a three-month low on Thursday as growing confidence in a trade rapprochement between the U.S. and China drove bond yields and risk assets higher across the board.

The Chinese Ministry of Commerce said that the two countries had agreed to roll back import tariffs on each other goods in phases as part of a preliminary truce. While that wasn’t expressly confirmed by U.S. sources on Thursday, it gels with recent reports that have cited unnamed Washington sources indicating that the Trump administration is prepared to back down on the use of its favorite trade weapon.

By 11:13 AM ET (1613 GMT), gold futures for delivery on the Comex exchange were down 1.5% at $1,470.15 a troy ounce, having earlier fallen as far as $1,468.95, their lowest since the start of August, when President Donald Trump threatened his most dramatic increase in import tariffs yet on Chinese goods.

Spot gold was down 1.4% at $1,469.62.

Silver futures tumbled 2.3% to $17.19 an ounce, while platinum futures fell 1% to $922.45.

Precious metals were struggling to keep their attractiveness as yields on U.S. Treasury bonds also broke out of recent ranges to the upside. The 10-year yield rose 11 basis points to 1.93%, also a three-month high, while the two-year rose to a six-week high of 1.67% as hopes of any further interest rate cuts from the Federal Reserve faded. According to Investing.com’s Fed Rate Monitor Tool, the chance of a further rate cut at the Fed’s policy meeting in December has now fallen to less than 5% from over 25% a week ago.

Flow data suggest that even without the turnaround in sentiment, portfolio investors had become more leery of piling into gold-backed ETF products in October as prices reached new highs. According to data compiled by the World Gold Council, ETF holdings of gold-backed products rose by only 1.42 million ounces, or 44 tons, in October – the smallest monthly increase since May.

Over two-thirds of that increase came from European funds, in an apparent response to the European Central Bank’s latest package of easing measures. Less than one-third came from North American investors, by contrast.

The differing regional dynamics were in evidence again on Thursday as the Bank of England indicated it may have to cut interest rates again if the prolonged economic uncertainty emanating from Brexit and the U.S.-China trade dispute continues.

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