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 United States 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 pulled back after rallying on Thursday following stronger-than-expected retail sales data that dispelled fears that the US economy is heading for a recession.
The blue-chip Dow slipped 0.2 per cent, the S&P 500 shed 0.3 per cent and the tech-heavy Nasdaq Composite fell 0.3 per cent.
“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 per cent from its 5 August low and the Nasdaq Composite has gained 12 per cent.
“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.
In Asian trading, the Nikkei 225 jumped 3.6 per cent as the yen was lower against the dollar early in the day.
London was a rare faller among stock markets as a strengthening pound weighed on multinationals earning in dollars.
On the corporate front, shares in German chemicals giant Bayer jumped 10.7 per cent in afternoon trading 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 around 1.5 per cent, with 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 1330 GMT
- New York – Dow: DOWN 0.2 percent at 40,502.13 points
- New York – S&P 500: DOWN 0.3 percent at 5,525.71
- New York – Nasdaq Composite: DOWN 0.5 per cent at 17,507.74
- London – FTSE 100: DOWN 0.6 per cent at 8,301.82
- Paris – CAC 40: UP 0.2 per cent at 7,434.24
- Frankfurt – DAX: UP 0.5 per cent at 18,277.4
- EURO STOXX 50: UP 0.4 per cent at 4,827.29
- Tokyo – Nikkei 225: UP 3.6 per cent at 38,062.67 (close)
- Hong Kong – Hang Seng Index: UP 1.9 per cent at 17,430.16 (close)
- Shanghai – Composite: UP 0.1 per cent at 2,879.43 (close)
- Euro/dollar: UP at $1.1000 from $1.0972 on Thursday
- Pound/dollar: UP at $1.2901 from $1.2853
- Dollar/yen: DOWN at 147.76 yen from 149.06 yen
- Euro/pound: DOWN at 85.26 pence from 85.36 pence
- West Texas Intermediate: DOWN 1.6 per cent at $76.88 per barrel
- Brent North Sea Crude: DOWN 1.5 per cent at $79.84 per barrel
