Gold Trading Capped by Insistent Dollar

Gold Trading Capped by Fed’s ‘Insistent’ Dollar as China Stimulus Bucks Global Stock Sell-Off’

Bullion.Directory precious metals analysis 26 October, 2018
By Adrian Ash
Head of Research at Bullion Vault

Shares in US tech giants Amazon (Nasdaq: AMZN) and Alphabet (Nasdaq: GOOGL) both fell over 4% in after-hours trading last night after missing analyst forecasts for their latest earnings reports.

Slow gold trading in Asia today “[was] just a temporary lull in a more structural move higher in the coming days,” reckons Australasian bank ANZ’s analyst Daniel Hynes.

With US third quarter GDP data due out later on Friday, “Investors will keep a watch on New York trading” the Japan Times quotes one Tokyo analyst.

“Investors [have] continued to reduce stock market exposure on worries over fundamentals,” says another.

“For those eager for signs that this is not the end [of the 10-year rise in world stock markets], one need look at the performance of high-yield bonds,” says a column at Barron’s.

“Usually, junk bonds move in sync with small-cap stocks,” but corporate debt rated below investment grade has lost only 1.2% so far this month versus a 9.1% drop in the S&P500 stock index.

“A junk-bond implosion might not be imminent,” agrees a column at Bloomberg.

“But if risk-off sentiment intensifies, the worst stocks and the worst bonds will be one and the same.”

The rising US Dollar today saw gold priced in British Pounds trade up to £965, erasing the last of 2018’s previous £67 drop as wrangling continued between London and the European Union over finalizing a deal for Brexit next March or risking ” no deal chaos“.

Euro gold prices also rose to their highest since June on Friday, extending the week’s 2.1% gain to come within 40 cents of €1090 per ounce despite stronger-than-expected consumer sentiment surveys from both France and Germany.

Most Eurozone government bond prices rose as stocks fell, but Italy’s cost of borrowing rose above 3.5% on 10-year debt, widening the spread over German Bund yields to 316 basis points.

Crude oil meantime erased yesterday’s rally, trading back down to $76 per barrel of Brent, as Turkey’s President Erdogan said he has more “information and evidence” about oil giant Saudi Arabia’s murder of US-based journalist Jamal Khassoghi in Istanbul.

Ahead of the US GDP data, the Federal Reserve has been “very insistent” about planning to keep raising Dollar interest rates, said Mohamed El-Erian – chief economic advisor at insurance giant Allianz – to CNBC this morning, failing to offer investors “a single soothing word” during this month’s stockmarket plunge.

With Shanghai’s stockmarket managing a small gain this week after Beijing launched a raft of support and stimulus, “We don’t need to worry too much” about China’s weak Q3 growth – the slowest since the global recession of 2009 –  reckons Hu Yuexiao, chief analyst at Shanghai Securities.

“[Chinese] investment has stabilized and started to rebound, and the weakening of growth may have possibly stopped.”
“However in this environment of risk aversion, bullion can rally despite a strong Dollar.”

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