A loss harvested today runs past the October 28 decisions
The Tax desk identified a harvestable loss in gold this morning: futures settled at US$4,168.40 on Monday, 8.0 per cent below the August 28 close of US$4,529.90, and a repurchase inside the 61-day superficial loss window would erase the deduction. Laid against the central bank calendar, that window has a second consequence. A sale today settles on October 1, because nothing settles on Wednesday, and the restriction then runs to October 31. The Federal Reserve and the Bank of Canada both announce decisions on October 28, so both fall inside it.
What a harvested position gives up is exposure to those decisions. Money markets put the chance of a Fed hike on October 28 at 71.2 per cent and a hold at 28.8 per cent, according to the Investing.com Fed Rate Monitor. Across the 20 sessions since August 28, gold averaged a 0.75 per cent decline on the 13 days the US ten-year yield rose and a 0.24 per cent gain on the 7 days it fell. The pressure has come from rising yields, so the outcome the market rates least likely is the one most likely to ease it, and a position sold this week is not held to receive that outcome.
The tax value is known and capped, while the exposure is not. The Tax desk put the federal value of each dollar of net capital loss at 7 to 16.5 cents, so an 8.0 per cent loss is worth between 0.6 and 1.3 per cent of the original position in federal tax. Gold fell 3.5 per cent on Monday alone.
Gold has settled lower in 12 of 20 sessions since August 28, and the window opened by a sale today spans both October 28 decisions.
Gold futures daily settlements from the August 28 close. The shaded band runs from the September 29 sale to October 31, the 30th calendar day after the October 1 settlement date. The Federal Reserve raised its policy rate by 25 basis points on September 16, and both central banks announce decisions on October 28.
The Canadian yield has risen without Canadian data behind it
Statistics Canada reported Tuesday that July GDP was essentially unchanged. Manufacturing fell 0.9 per cent, led by a 6.2 per cent drop in petroleum refining, mining, quarrying and oil and gas extraction fell 0.5 per cent for a second month, and retail trade fell 1.0 per cent, against gains of 1.3 per cent in construction and 1.7 per cent in utilities on a July heat wave. BMO is tracking third-quarter growth at 1.5 to 2 per cent, in line with the Bank of Canada forecast of 1.5 per cent.
The bond market has moved the other way. The Government of Canada 10-year yield closed Monday at 3.97 per cent, up 24 basis points from 3.73 per cent on August 28 while the policy rate stayed at 2.25 per cent. That puts the yield 172 basis points above the policy rate, against 148 a month ago. The US ten-year rose 52 basis points over the same stretch, and daily changes in the Canadian yield tracked it with a correlation of 0.83.
The Canadian 10-year yield rose 24 basis points against 52 for the US ten-year, with the policy rate unchanged.
Daily closing yields with the Bank of Canada policy rate held at 2.25 per cent since the September 2 decision. The US minus Canada 10-year spread widened from 100 to 128 basis points over the period.
Money markets price roughly 100 basis points of Canadian hikes over 12 months against core inflation of 2.0 per cent, as the Economy desk reported. Most of the daily movement in Canadian yields has followed Washington, which makes the October 28 Fed decision the common variable for the Canadian curve and for gold.
What falls inside the window before the decisions
US August PCE inflation is due Wednesday and the US jobs report on Friday. The TSX trades Wednesday although nothing settles that day. US and Iranian negotiators are expected to resume talks this week, and WTI traded between US$90.5 and US$92 on Tuesday morning, within two dollars of the US$90 line the Geopolitical desk set as the condition for the Canadian energy re-rating. The TSX composite was near 35,360 in mid-afternoon trading, down 0.4 per cent from the Monday close of 35,489.86,.
A loss realized this week owns none of that outcome: the deduction is worth up to 1.3 per cent of the position in federal tax, and gold moved by more than that on 5 of the last 20 sessions. On Wednesday morning, the PCE print is the first read on whether the yield keeps rising.