Gold Prices Up As Bonds Slide

October 18th, 2016 by

Gold prices are making a determined effort in New York to stay above the $1,260 mark that was hit in Asia overnight. The dollar is attempting to dig itself out of negative territory, being pressured lower by the New Zealand dollar and British pound. Both currencies are gaining on news that inflation is increasing faster than expected in their respective nations.

gold barsSpot gold was up as much as $9 an ounce earlier this morning, a whisper from the $1,265/oz mark. Spot silver has eased from a $17.79/oz high, but remains modestly higher. Both of the Platinum Group Metals were also slightly above unchanged.


Wall St opened higher this morning, assisted by earnings beats by Goldman Sachs and Netflix (NFLX). Third quarter earnings in general have exceeded expectations. All of the major sectors were in positive territory, led by basic materials, healthcare, and technology. Global equities followed Wall St into the green, with the EURO STOXX 50 index adding 1.25%. Overnight, the Shanghai Composite index and Hong Kong’s benchmark Hang Seng stock index advanced 1.4% and 1.55%, respectively.


The rally in crude oil is stalling again today due to no fresh news to drive it higher. Market analysts say that the proposed production cut by a consortium of OPEC and Russia has already been priced into the market. If those cuts do not in fact materialize, crude prices will be hit hard. Meanwhile, Iran is sticking to its output projection of four million barrels per day. This is the second straight session in the red for oil prices. WTI crude futures expire on Thursday.


The big story today, however, is inflation. Thanks to a pound sterling that has been the worst performing major currency in the world, prices in the UK have shot upward. Imports are far more expensive than before the Brexit referendum, with food being the most noticeable. UK consumer prices in September jumped by the most in 23 months.

The Consumer Price Index (CPI) was also released by the U.S. Labor Department on Tuesday. The measure showed a 0.3% increase during September—beating the median forecast—after CPI rose by 0.2% the previous month. It was the fastest acceleration of consumer prices in five months, and also marked the fastest pace of rising prices on a year-over-year basis (+1.5%) in two years. This continues to improve the case for the Federal Reserve raising interest rates before the year ends.


The markets have been witnessing a selloff in government bonds as the gradual improvement of economic data in the U.S., along with solid corporate earnings, has caused some risk aversion to abate. The 10-year Treasury note yield fell 3 basis points to 1.75%. In other news Saudi Arabia may be preparing to issue its own bonds onto the international markets for the first time ever as part of the country’s effort to reform and modernize its economy.


The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.