LONDON, UK – JULY 9: British Prime Minister Sir Keir Starmer will host the first roundtable of UK regional mayors with Andy Burnham (R), Mayor of Greater Manchester, at Downing Street, London, UK on 9 July 2024. Sir Keir Starmer hosted the first roundtable with metro mayors from 11 regions across England. (Photo by Ian Vogler – WPA Pool/Getty Images)
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Gold yields rose slightly on Friday as British Prime Minister Keir Starmer faces a leadership challenge from his Labor Party rival.
The current mayor of Manchester, Andy Burnham, is expected to stand in the parliamentary special election, and a victory would give him the seats he needs to challenge Starmer, whose premiership is under pressure after last week’s disastrous local election results.
Mr Burnham is seen by bond markets as leaning more to the left, raising borrowing costs and investors worried that his appointment as prime minister could lead to more borrowing and more debt.
By 1:50 p.m. in London, the benchmark 10-year Treasury yield had risen more than 17 basis points to 5.165%. 30-year gold added 19 basis points to 5.840%.
Bond yields and prices move in opposite directions, and traders often demand higher yields on bond investments when confidence in the government that issues them is shaken.
“Investors around the world are saying, ‘I don’t feel safe because I don’t know what’s going on with the Labor Party,'” Kit Jaks, chief currency strategist at Société Générale, told CNBC’s “Squawk Box Europe” on Friday.
“We thought they were in the supermajority and we thought they knew what they were going to do and were smart, but now we have no idea.”
“So the pound is a bit vulnerable and the gold market remains vulnerable as well.”
Mr Burnham retracted his comments in September after saying the UK government should not be “dismayed” by a bond market that had scared traders and sent yields soaring.
Meanwhile, President Donald Trump told reporters on Friday that it would be “tough” for Starmer to survive politically without addressing immigration or energy policy.
After a week of political turmoil, the pound fell for the fifth straight day, falling 0.46% to $1.3342.
“Andy Burnham poses the biggest threat to the gold market of any serious Labor candidate, as investors immediately associate his leadership ambitions with heavier state spending, less fiscal discipline and a greater appetite to test the market’s tolerance for borrowing,” said Nigel Green, CEO of financial adviser De Vere Group.
“Bond markets are still reeling from the trauma of Liz Truss’s mini-budget crisis. We all still remember how quickly the UK lost confidence once investors believed fiscal discipline had broken down.”
Mr Starmer’s leadership is in flux after his party’s poor performance in last week’s local elections led to widespread calls for his resignation from MPs.
Wes Streeting, who was initially seen as the front-runner to replace Starmer, resigned as health secretary on Thursday, but did not mount a challenge to his leadership.
In his resignation letter, Mr Streeting told Mr Starmer he had “lost faith” in his leadership and said: “It is clear that you will not be leading Labor at the next general election.”
Angela Reiner, Starmer’s former deputy, said on Thursday she had been cleared of deliberate wrongdoing over tax matters, increasing her chances of running for leadership again.
