Gold has wild ride as dollar U-turns
Gold traded at its lowest mark in two years as pressure mounted on the yellow metal. Until a short while ago, the US dollar and the US 10-year yield were higher and that drove gold to its lowest mark since in 2020. The yellow metal has fallen out of favour with investors recently as the US dollar has now become a popular safe haven asset, unfortunately for gold, the strong inverse relationship it has with the greenback is working against the commodity. Also, in an era of rising interest rates and higher government bond yields, some feel that gold is no longer as attractive as it once was, as it does not pay interest. The fall in gold comes at a time when equity markets are falling too, which says a lot about the sentiment surrounding the commodity. Gold is now up on the session thanks to a reversal in the greenback.
Sterling took a pounding today due to the poor UK retail sales data which fell by 1.6% in August. It suggests that shoppers are tightening their belts at a time when bills are rising. There are growing worries about the health of the UK economy as inflation is stubbornly high and national debt is about to jump as the government’s energy cap plan is designed to shield individuals and businesses from the worst of the rising utility costs. GBP/USD plunged to its lowest mark since 1985. EUR/USD is now above parity because of the sudden retreat in the US dollar in the last few hours. It is possible that traders were just squaring up their books going into the London fix. Due to the overall downbeat mood in the markets and worries about future demand, silver and copper were down for much of the session but the U-turn in the US dollar has seen them rebound. WTI and Brent crude are up over 1.5% as Saudi Arabia and Russia declared that $100 for oil is a fair price, the comments were taken as a signal that OPEC+ might cut production again.
The US 10-year yield has turned lower, but it was up on the session, and that hurt stocks. In recent months, rallies in yields have sometimes sparked sell offs in indices and that is what were saw today. The 10-year yield came close to hitting 3.5%, and keep in mind that level has not been seen for over a decade. Yields are in focus ahead of the next week’s Fed meeting. Dealers are behaving as if a 75-basis points hike is a done deal, so the guidance will be in focus.
