Gold sinks over 3% as US Treasury yields return to 2007 highs

President Trump's weekend rejection of Iran's plan to reopen the Strait of Hormuz sent oil higher on Monday, and the bond sell-off that followed took the US ten-year yield back to its highest since 2007. Gold fell more than 3% and silver more than 5%, the dollar held near a two-month high, and the yen jumped on a sharper warning from Tokyo before giving the move back.

Oil, yields and the dollar

• Trump turned down Iran's seven-day proposal to reopen the Strait of Hormuz over the weekend, the offer that had helped ease oil last week, and FXStreet had WTI crude at $94.60 by late morning in Europe, up nearly 3.5% on the day. Action Forex said news that flows through Saudi Arabia's east-west pipeline had recovered again probably stopped Brent from heading for $110. By the US afternoon, according to FXStreet, oil had given back the whole rise after the pipeline news and a US offer of sanctions relief, and it swung on Iran headlines into the close.
• Yields kept climbing anyway, unlike Friday, when the oil pullback had pulled short-dated yields lower.
• FXStreet had the ten-year yield up more than 10 basis points by late morning in New York, back at the 2007 highs it first reached last week. In a note before the US session, Société Générale had put the next levels at 5.24% and 5.36%.
• The dollar stayed pinned near a two-month high, according to Investing.com, and Brown Brothers Harriman argued it can keep benefiting from wider rate differentials and higher real yields. USD/CHF rose for a fourth straight day, to a 16-month high above 0.8320 on our feed.
• Fed Governor Lisa Cook said the number and size of future rate moves will depend on inflation and labour market data, and that AI and Iran risks could keep inflation pressures high.

The yen

• The yen surged after Japan's Vice Finance Minister Atsushi Mimura said markets should take the coordinated Japan-US message on yen weakness "at face value", and Action Forex had USD/JPY pushed below 157. The move faded: from 01:16 UTC, when our price feed picked up the session, the pair ranged between 156.51 and 157.85 and closed at 157.38, level with Friday.
• That leaves it well short of Thursday's 159.02 top, the line our weekly wrap is watching this week.
• The Bank of Japan's July minutes, released early in the session, showed policymakers had already shifted from lifting inflation to preventing it from overshooting, the shift behind September's hike.

Gold and silver

• FXStreet reported gold down more than 3.4% at $4,139 after an early peak at $4,280, having touched its lowest since 5 August, and our own feed closed it at $4,123, down 3.9% from Friday. Higher yields raise the cost of holding a metal that pays nothing, the link we explain in our guide to gold and real yields.
• Société Générale noted that gold failed to hold above its 200-day moving average, with resistance near $4,315.
• Silver fell harder: 5.5% on our feed, to $60.84.

Europe, sterling and the Australian dollar

• ECB President Christine Lagarde said the bank stays on its "middle path" after this month's 25 basis point hike, arguing the energy shock is too large to ignore but not yet embedded deeply enough to justify a more forceful response. That pushed back on bets on faster hikes, and the euro slipped to 1.1353 on our feed, its late-July low.
• The pound closed at 1.3254, a touch above Friday, despite the jump in US yields, with bets on a Bank of England hike building, and the euro fell sharply against it towards 0.8570.
• The Australian dollar held near 0.7020, with expectations of an RBA hike offsetting the higher US yields.

Market gauges and what's next

Our proprietary metrics at the close of the session:

• Readings: an MRS of 69, a CTS of 71, and an FSI indicating Greed at 65.
• Coverage: our price feed only picked up the session at 01:16 UTC, so the strength readings below cover 1,182 of its 1,440 minutes, without the Asian open.
• Top of our strength table: the Swiss franc for the second session running, on top for 23% of those minutes and well clear of the yen in second place, on a day the franc fell to a 16-month low against the dollar.
• Bottom: a tie. No currency spent clearly more of those minutes in last place than the rest, so there is no single laggard.
• The dollar: seventh of eight by minutes in first place, on top for 101 of 1,182, on a day it held near a two-month high. For the franc and the dollar alike, the table counts the minutes each currency spends in first place, not how far it moved.

Still ahead today: the Reserve Bank of Australia decides at 04:30 UTC, with a 25 basis point hike to 4.60% expected, and the US releases the Conference Board's consumer confidence and JOLTS job openings after Canada's GDP.