Nervous Investors Shed Risk and Bought Gold

Monday was a U.S. holiday so there was no trade in the U.S. cash equity markets. There was a limited trade in the CME Group’s electronic stock market. All major indexes closed lower in response to a nuclear weapons test by North Korea over the week-end.

In fact, the driving force for all of the price action in the markets on Monday was the North Korean event. Investors reacted the same way they did when the rogue nation launched a missile over Japan last week.

Nervous investors sold the higher yielding U.S. stock equities and the U.S. Dollar. They also bought the lower-risk, lower-yielding Japanese Yen, Gold and U.S. Treasurys.

Needless to say, both volume and volatility were well-below average. This led to tight trading ranges.

Gold

Gold futures spiked to their highest level in almost 12-months as safe haven assets continued to draw the attention of investors against a backdrop of ongoing concerns surrounding North Korea and the increased possibility of a nuclear war.

December Comex Gold settled at $1339.40, up $9.00 or +0.68%.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil finished mixed on Monday. Early in the session, investors pulled money out of the oil markets and move it to the safety of gold. However, WTI crude was able to overcome the early selling while Brent took the brunt of the selling pressure.

October WTI crude oil settled at $47.37, up $0.08 or +0.17% and November Brent crude oil closed at $52.34, down $0.41 or -0.78%. Volume was well-below average because of the U.S. bank holiday.

Traders said the price action in WTI crude suggests more stable conditions due to last week’s production outages following Hurricane Harvey. About 5.5 percent of the U.S. Gulf of Mexico’s oil production, or 96,000 barrels of daily output, remained shut on Sunday, the federal Bureau of Safety and Environmental Enforcement said.

At the same time, refineries that use crude to make fuel were gradually starting up again, along with the pipelines transporting products. This is a potentially bullish development for WTI crude oil.

U.S. Equity Markets

U.S. stock market traders could pick up where they left off on Friday unless there are lingering concerns over North Korea. To recap Friday’s price action:

U.S. stocks finished higher on Friday as investors responded positively to a weaker-than-expected jobs report. Buyers were mostly driven by the idea of lower interest rates over the mid-to-long-term because the jobs data suggests the Fed may be hesitant to raise rates later this year. With interest rates hovering near historical lows, stocks remain an attractive asset class.

The jobs data wasn’t necessarily bad. The headline number just came in under estimate. This suggests steady economic growth. Average hourly earnings were also below the estimate. The combination of steady economic growth and low inflation is bullish for stocks.

In the cash market, the blue chip Dow Jones Industrial Average closed at 21987.56, up 39.46 or +0.18. Banking stock Goldman Sachs contributed the most to the gain. The Dow also rose above 22,000 for the first time since mid-August.

The benchmark S&P 500 Index settled at 2476.55, up 4.90 or +0.20%. Energy was the strongest sector, followed by financials.

The tech-based NASDAQ Composite rose 6.67 or 0.10% to finish at 6435.33.

The strong move by the indexes late in the week, helped the three major indexes post solid weekly gains. The Dow finished the week up 0.8 percent. The S&P 500 rose 1.3 percent for the week and the NASDAQ Composite posted its strongest performance of the year with a solid 2.7 percent gain for the week.