Iron Ore Prices Fall

Before markets became nervous about North Korea, the Dow Jones and S&P500 seemed to climb a little higher each day. The moves were never big but were very consistent. It appears we are back in this routine as both indices overnight closed slightly higher and both reached (or very nearly reached) a new record high. The gains came despite the fact that president Trump threatened that it would 'totally destroy' North Korea if it or its allies were attacked in a speech given to the United Nations.

Yesterday the RBA released the minutes from the prior monetary policy meeting. There wasn't anything particularly surprising in there with the board remaining concerned about rising household debt and a strong Aussie dollar while employment data and forecast GDP growth are bright spots in the outlook. The most recent employment data was particularly strong with August showing the strongest job gains since March. GDP growth for 2018 is expected to be 3.0%, a reasonably solid growth rate.

Gold rallied slightly overnight after several days of falls. The decline from a peak of approximately $1,345 is largely due to increased expectations of another rate hike this year. Gold prices generally suffer during times of high interest rates as holders of gold bullion earn no return and therefore the opportunity cost of holding gold in a high interest rate environment is high. On the other hand, interest rates are still extremely low in every developed economy in the world. Gold traders will be waiting anxiously for the FOMC meeting that will occur early tomorrow morning Australian time.

Iron ore prices have started retreating from levels reached around mid-August. The price has dropped back below US$70 per tonne. The selling pressure may be related to high inventory levels and demand concerns as some Chinese councils ordered cuts to sintering output. The price is still well above the June lows of approximately $53 but for now the trend is down.   

Data Releases:

–    UK Retail Sales 6:30pm AEST

–    US Federal Funds Rate 4:00am AEST

–    US FOMC Press Conference 4:30am AEST

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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.