Gold shines as yields plunge on BoE intervention

BoE will temporarily carry out purchases of long-dated UK government bonds at an “urgent pace,” and on “whatever scale” necessary to restore orderly market conditions.

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The big news today came from the UK, where the Bank of England announced it will intervene in the bond market aimed at attempting to soothe investor nerves after they were spooked by last week’s mini budget. The bank was worried about a “material risk to UK financial stability,” and so it has stepped in to temporarily carry out purchases of long-dated UK government bonds from today at an “urgent pace,” and on “whatever scale” necessary to restore orderly market conditions.

The news sent shockwaves across risk assets as investors attempted to front-run the BoE and potentially other central banks buy buying downbeat bonds. As a result, bond yields sunk, and this triggered a short-covering rally in gold and stock markets.

The intervention by the BoE has given rise to speculation that other central banks might follow suit in a similar way. It remains to be seen whether this will be the case. But traders are buying bonds today and will be asking questions later.

With yields sinking, gold has finally managed to find some buying interest, with the metal able to climb back to the base of the recent breakdown around $1655. Whether or not it can kick on from here remains to be seen. But bullish speculators will not be too excited about a gold recovery until it has formed a higher high and broken out of its bearish channel. It is definitely one to watch though!

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