Gold Surges as Equities Pull Back

September 24th, 2015 by

The gold price spiked during early trading on Thursday morning at the same time that equity markets around the globe were deepening their losing streak this week. Futures trading for U.S. indices indicated a fifth straight day of losses for the S&P 500. All three major U.S. stock indices were indeed 1% in the red by 10 am EST.

gold rallyGold got a serious boost when durable goods orders fell by 2% after two consecutive months of gains. The yellow metal rose by about the same amount that factory orders fell in August, surging nearly $25 per ounce (+2.2%) to $1,156/oz. Silver also added roughly 2% (+30¢) to $15.20/oz, while platinum bounced from a 6-year low to more than $950/oz (+$16).

In the meantime, stock markets abroad tumbled lower with their U.S. counterparts, with China and Australia representing exceptions: the Shanghai Composite added 0.9% overnight, while the Australian Stock Exchange was almost 1.5% higher. Both the yuan and the Aussie dollar were flat, though few are convinced (besides HSBC) that China’s stock market is out of the water quite yet.

Japan’s Nikkei 225 lost approximately 2.75% while Hong Kong was nearly 1% lower. Taiwan (the TSEC) was also off by about 0.85%. The yen was 0.65% lower after Prime Minister Shinzo Abe announced new (indefinite) targets for the Japanese economy—¥600 trillion, an increase of some 20%.

European Markets Softer

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Despite some encouraging growth data out of Europe helped the continent’s stocks rise by and large on Wednesday, Thursday was a reversal of fortunes. Major indices fell between 1% and 2% about halfway through their active trading hours across the Atlantic. The contrast between the two days manifested in other ways, as well: Wednesday was encouraging enough for ECB President Mario Draghi to hold off on any additional QE measures, choosing to wait longer to see how the last round of stimulus plays out; on Thursday, Norway’s central bank (Norges Bank) cut its benchmark rates by 25 basis points to 0.75%. Moreover, lending from the ECB to other European banks was weaker than expected during the last quarter.

The euro, however, did bounce back from a monthly low just above $1.11 at midweek. The common currency was up another 0.8% on Thursday to $1.1275. The dollar fell about a third of a percent on the DXY index to 95.7. In addition to the durable goods orders miss weighing on U.S. markets, there was also an increase of 3,000 in new jobless claims to 267,000 claims this week.

Awaiting Yellen

yellen2Both investors and traders, among other market participants, will be eagerly waiting for Fed Chair Janet Yellen to give a speech at the University of Massachusetts later today at 5 pm EST. Even though it seems that action on the markets is in full haven-seeking mode in response to the FOMC’s dovish characterization of economic conditions in this month’s committee statement, the the rhetoric from individual Fed governors and branch bank presidents has been overwhelmingly hawkish of late. (This isn’t an accident—it follows “buy the rumor, sell the news” behavior perfectly.) Depending on how hawkish Yellen comes across in today’s speech, we could see a replay of last month’s pattern of rising expectations for a rate hike again in October.