Stock Market Weakness Makes Gold an Attractive Hedge

December Comex Gold futures and the EUR/USD rallied on Wednesday as investors continued to react to the latest Fed minutes released on Wednesday which showed the central bank may not be ready to raise interest rates next month. A sell-off in the global equity markets also boosted gold’s appeal as a hedge against further declines.

October Crude Oil futures reached a 6 ½ year low on Thursday as the selling continued following yesterday’s bearish Weekly U.S. Energy Information Administration’s inventories report for the week-ending August 14. The report showed that U.S. stockpiles rose by 2.6 million barrels. Traders had priced in a drawdown of about 600,000 million barrels.

The EUR/USD continued to find support on Thursday. Today’s strength was driven by investors lifting short bets for a September rate hike by the Fed after yesterday’s release of the July Fed minutes suggested that central bank members thought the economy was moving towards a rate hike, but may not be strong enough at this time to warrant the first rate hike since 2006.

After finding support earlier in the week on friendly U.K. consumer inflation news, the GBP/USD fell on Thursday after U.K. retail sales fell short of expectations. According to the Office for National Statistics, U.K. retail sales grew only 0.1% in July. Traders were looking for an increase of 0.4%. The figure did show some recovery from the -0.1% reading for June.

The disappointing retail number probably means that U.K. economic growth will decline into the end of the year while increasing the odds that the Bank of England will push a rate hike further into 2016.

In other news, U.S. weekly unemployment claims came in at 277K, slightly above the 272K estimate. Existing home sales, however, were better than expected with a reading of 5.59 million units versus an estimate of 5.45 million units.

The Philly Fed Manufacturing Index provided some relief to the falling U.S. Dollar, with a reading of 8.3 versus an estimate of 6.9. The Conference Board’s Leading Index was lower than expected at -0.2%.

Tomorrow’s trading session will be dominated by Flash Manufacturing PMI and Flash Services PMI reports from Europe and the Euro Zone.