Gold closes in on $1900
Risk flows remain positive
Nikkei -0.58% Dax 0.56%
UST 10Y 0.59
Asia and the EU
North America Open
USD Jobless Claims 8:30
Gold hit fresh multi-year highs today rising for the fifth day in a row as the rally in the yellow metal is taking on the look of a breakout.
As we noted yesterday gold is benefiting from the decline in real rates in the US as Federal Reserve continues to crush the yield curve in order to offset the negative impact of the coronavirus curve which continues to remain stubbornly high in the US.
The move out of the greenback as it continues to lose yield has been a boon for gold even as inflation fears remain at bay. As we’ve stated in the past gold is primarily driven by the declines in real rates which make the cost of carry much more bearable for the precious metal. The recent price action, therefore, suggests that there may be a fundamental shift in the market as investors look to diversify into hard assets amidst rising geopolitical tensions and drooping yields.
In equity-land risk flows remained positive with all indices higher by 30 to 50 basis points as investors remained upbeat about the revival of global growth. Tesla’s quarterly beat during a very challenging COVID hampered time was also a boost to speculative sentiment as it now puts the stock on a trajectory to included in the S&P500 which should only add to the momentum flows.
In FX the trade was subdued but EURUSD did inch towards the 1.1600 figure with analysts now chattering about the prospect of 1.2000 back in view. The euro rise is as much a function of dollar weakness as it is a reflection of the new federated powers of the EU officials but the pair remains in a relentless uptrend that shows no signs of slowing.
With the US eco calendar only carrying jobless claims markets won’t likely be moved by data but by political headlines. Although the rising tensions with China have been ignored as nothing more than saber-rattling mainly on the assumption that China will only respond proportionately to the US closure of its Houston consulate if China decided to escalate the conflict by suggesting that it may close the US consulate in Hong Kong, the risk dynamics would change instantly. For now, however, investors continue to coast on momentum flows which continue to drive equities up.