Gold Traders Refocus On US Rate Increase

Markets on Monday were totally unpredictable. As expected when the trading week opened in Asia safe haven currencies and commodities soared. The US dollar continues to rally but the Japanese yen quickly gave back its gains but the most amazing effect was gold. Gold soared over $11 as soon as the markets opened and looked like it could break above the $1100 price level. By the open of the European session gold began to give back its gains but managed to close the day with small gains. On Tuesday morning gold fell another $3 to trade at 1080.90. The international reaction to the terrorist attack remained in the headlines except its predicted effect on the financial markets was long forgotten. Silver is down to 14.21 near the bottom of its trading range and platinum recovered $1.85 to 869.85.

Global equity markets gained on Monday as analysts saw limited economic impact worldwide from Friday’s deadly attacks in Paris; although the sale of luxury goods and stocks geared to tourism in the French capital may suffer. Asian shares hit six-week lows overnight as investors bought safe-haven assets, including gold, the yen and low-risk government debt. But stocks on Wall Street climbed more than 1 percent and European shares rebounded from early losses. The Dow Jones closed up 237.77 points, or 1.38 percent, to 17,483.01. The S&P 500 gained 30.15 points, or 1.49 percent, to 2,053.19 and the Nasdaq Composite added 56.73 points, or 1.15 percent, to 4,984.62.

The euro was off 0.87 percent versus the greenback at $1.0683. The US dollar rallied to 99.67.

France’s CAC index closed down 0.08 percent, weighed by declines in tourism-related stocks. French hotel group Accor dropped 4.7 percent and Air France shed 5.7 percent. Luxury stocks also slid, though less so. Hermes and LVMH both fell 1.4 percent, while Kering slipped 0.7 percent. Spending by foreign tourists in Paris makes up a large chunk of these companies’ sales.

Japan’s Nikkei share average rebounded on Tuesday morning with all sectors in positive territory after U.S. stocks rose, while exporters outperformed after the dollar strengthened as the market refocused attention of an imminent U.S. rate hike.  The Nikkei rose 1.4 percent to 19,662.91 in midmorning trade, erasing all of the drops posted on Monday after Friday’s deadly attacks in Paris sapped risk appetite.

Traders say some investors are likely to take any interest rate hike in their stride given the Fed has been quite explicit about its policy intentions while others are worried that some turbulence is inevitable in emerging markets. Janet Yellen, the Fed chair, has repeatedly said that the impending sequence of rate hikes will be much slower than previous monetary cycles, and predicts that it will end at a lower peak level. While central bankers cannot always be trusted when they make such promises, since their jobs often require them deliberately to mislead investors, there are good reasons to believe that the Fed’s commitment to “lower for longer” interest rates is sincere. The U.S. Federal Reserve is almost certain to start raising interest rates when the policy-setting Federal Open Markets Committee next meets, on Dec. 16.