Gold Prices Rally Despite Stronger US Dollar

US Blue Chip stocks rose overnight while the broader market, as per the S&P 500, closed virtually flat. European markets were weak with the FTSE 100 down 0.28% and the Euro Stoxx 50 down 0.74%. The ASX 200 has had a weak run over the past month as the multi month rally that started in April has petered out. ASX 200 futures are up 9 points this morning. 

Gold prices spiked early in the US trading session which occurred despite a stronger US dollar. Gold rose US$17 per ounce to close at $1,204 per ounce. This recoups the losses suffered around the time of the rate hike in late September. The spike overnight appears to be technical in nature although the price has recently been driven by interest rate expectations. Rising rates are usually considered a negative for gold as the precious metal doesn’t pay interest. According to the CME Fedwatch tool, there is a 75% chance of a 25 basis point rate hike at the FOMC meeting in December.

The rise in US bond yields has stalled for the time being although the 10-year yield is holding firmly above 3.0%. After touching the seven year high of 3.11% back on 25 September, the yield has been hovering around 3.06% ever since then. The spread between the 2-year and 10-year bonds has also been fairly stable at around 25 basis points, above the recent lows but still a small from a historical perspective.

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This article was written by William O'Loughlin - Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.

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This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
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