Gold surged to a record high above $1,040 per ounce on Tuesday, as investors piled into the metal to preserve the value of their dollar-denominated assets against erosion by a weakening dollar and inflation.
Both spot gold prices and U.S. gold futures have benefited from a convergence of factors, including technical buying, a report that some oil producers could switch to other currencies to price their crude and worries about the potential inflation impact of unprecedented global fiscal stimulus.
Most-active U.S. gold December futures hit an all-time high $1,045. December settled at $1,039.70 an ounce, up 2.2 percent or $21.90.Bullion also hit six-month highs when priced in sterling and Euros, breaking above 700 Euros an ounce for the first time since early April.
The dollar slipped sharply after the Independent newspaper said Gulf Arab states were in secret discussions to end the use of dollars in oil trading. Big oil-producing countries later denied the report. An interest rate hike in Australia also reinforced expectations the Federal Reserve will lag other central banks in ending its loose monetary policy. Gold’s rally was driven primarily by fears over currency depreciation.
Augusts’ dismal industrial production figures released yesterday will dampen some of the recent optimism about the economy’s apparent bounce-back. The 1.9% monthly drop in manufacturing output took the level of output back to its lowest since 1992. Industrial production fell by an even sharper 2.5%. Accordingly, a return to positive overall GDP growth in Q3 now looks less certain. What’s more, the drop in last week’s CIPS/Markit report on manufacturing also suggested that the industrial recovery is starting to lose momentum. Indeed, as the boost from an easing in destocking eases, it is far from clear that underlying demand is strong enough to drive the recovery instead.
The UK market is currently flat and the European markets are down around half a percent. U.S futures markets are pointing to a slightly positive start when their markets resume trading this afternoon. Futures currently forecast the Dow to open up around 29 points; the Nasdaq to open up 26 and the S&P set to open flat.
Sources: Reuters: BBC: Bloomberg: Lawshare: Deutsche Bank (db): Proquote: Financial Times: Wall Street Journal: CLSA: Sharescope: Market News. Capital Economics: CNBC: Wikipedia: GaveKal:
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