Gold hit a record high on Friday as global stock markets diverged, with profit-taking on Wall Street while European and Asian markets gained on reassuring data about the health of the world’s biggest economy and likely US interest rate cuts.
Expectations of US interest rate cuts weakened the dollar, while oil prices tumbled as weak Chinese demand expectations offset turmoil in the Middle East, according to traders.
Gold rose to a record high of $2,500.16 an ounce as investors snapped up the haven investment in the face of an increasingly likely US interest rate cut in September and heightened geopolitical risks.
“The sharp drop in bond yields amid expectations of rate cuts by the Fed” have pushed gold prices higher, said City Index and FOREX.com analyst Fawad Razaqzada.
Wall Street’s major indices dipped at the start of trading after rallying on Thursday following stronger-than-expected retail sales data that dispelled fears the US economy is heading for a recession.
“These aren’t big moves at all relative to the gains that have preceded them, yet buyers aren’t rushing in to buy the dip just yet knowing the market has come a long way in a short amount of time,” said Briefing.com analyst Patrick O’Hare.
He noted that the S&P 500 is up more than eight percent from its August 5 low and the Nasdaq Composite has gained 12 percent.
“Concerns about the stock market being in a short-term overbought state have meshed with some weak housing starts and building permits data for July, and some attention-grabbing strengthening in the yen, to temper the conviction on the part of buyers,” he added.
Weak US jobs data and a Japanese interest rate hike double-whammied stock markets at the beginning of the month, as investors who had financed investments in red-hot US tech shares by borrowing in weak yen faced the prospect of immense losses as the value of the Japanese unit bounded higher.
“The worry is that further strengthening in the yen could trigger another unwinding episode” of the so-called yen carry-trade, O’Hare added.
Wall Street stocks pared their losses in morning trading as US consumer confidence data came in stronger than expected, with the Dow essentially flat as European markets closed for trading.
In Asian trading, the Nikkei 225 jumped 3.6 percent as the yen was lower against the dollar early in the day.
London bucked the positive trend in Europe as a strengthening pound weighed on multinationals earning in dollars.
On the corporate front, shares in German chemicals giant Bayer jumped 11.3 percent after a US court victory in the group’s long-running fight against claims that its glyphosate-based weedkillers cause cancer.
- Oil slumps –
Oil prices slumped more than 1.5 percent, Brent North Sea crude falling under $80 per barrel.
“The significant price recovery on the oil market has run out of steam in recent days,” said Commerzbank analyst Carsten Fritsch.
“For one thing, the feared retaliatory strike by Iran (on Israel) has so far failed to materialise, which has probably favoured a partial pricing out of the risk premium. In addition, new demand concerns are weighing on the market.”
Major oil producer Iran has threatened to retaliate against Israel for last month’s killing of Hamas political leader Ismail Haniyeh in Tehran.
- Key figures around 1530 GMT –
New York – Dow: FLAT at 40,564.40 points
New York – S&P 500: DOWN less than 0.1 percent at 5,539.03
New York – Nasdaq Composite: DOWN 0.2 percent at 17,566.62
London – FTSE 100: DOWN 0.4 percent at 8,311.41 (close)
Paris – CAC 40: UP 0.4 percent at 7,449.70 (close)
Frankfurt – DAX: UP 0.8 percent at 18,322.40 (close)
EURO STOXX 50: UP 0.7 percent at 4,840.52 (close)
Tokyo – Nikkei 225: UP 3.6 percent at 38,062.67 (close)
Hong Kong – Hang Seng Index: UP 1.9 percent at 17,430.16 (close)
Shanghai – Composite: UP 0.1 percent at 2,879.43 (close)
Euro/dollar: UP at $1.0996 from $1.0972 on Thursday
Pound/dollar: UP at $1.2898 from $1.2853
Dollar/yen: DOWN at 148.18 yen from 149.06 yen
Euro/pound: DOWN at 85.26 pence from 85.36 pence
West Texas Intermediate: DOWN 1.8 percent at $76.75 per barrel
Brent North Sea Crude: DOWN 1.6 percent at $79.77 per barrel
