Gold shines as dollar drops
Equity markets in Europe and the US continue to grind higher as the recovery story is still in circulation. It hasn’t been the most exciting of weeks, partially because of a lack of major economic announcements, and partially due to many market participants taking holidays. We have seen the S&P 500 notch up a number of new record highs this week, and in a way, it sort of feels like the index is on auto pilot. The pandemic is far from over, but for some of the larger economies in the world, it is less of a worry than it was at the start of the year. The DAX has racked up a fresh all-time high and the FTSE 100 is close to its recent 18 month high.
The US dollar index has arguably been the most interesting market this week. On Wednesday, the dip in the US core CPI reading promoted traders to take profit, while yesterday’s jump in PPI pushed up the greenback. Today, things have gone from bad to worse for the currency. It was already in the red, and then the disappointing University of Michigan consumer sentiment report put extra pressure on the dollar. The consumer confidence reading came in at 70.2, greatly undershooting the 81.2 forecast, it was also a major fall from the 80.8 registered in July. It would appear there was a sudden fall in consumer confidence, which could derail the recovery, because healthy consumer activity is needed to keep the rebound going.
The finer details of today’s consumer confidence report were a little concerning as the 5–10 year inflation expectations component increased from 2.8% to 3%. So even though consumer confidence is a lot lower, cost forecasts have increased, so that is the worst of both worlds. The acid test will be next week’s, retail sales data. Considering today’s announcement, traders’ expectations have probably been adjusted lower.
Gold has been driving higher in the past few sessions and it has recouped all the ground that it lost on Sunday’s flash crash, it is now trading above last week’s low. The slide in the US dollar has assisted the metal. Bargain hunters were enticed by its relatively cheap price too. If the bullish run continues, it could target the $1,800 mark.