Premarket Stocks: A Curious Case of Falling Gold Prices

But gold prices have not risen. In fact, they have fallen by almost 20% since the peak of last March. This puts gold on the edge of a bear market.

“Investors are not very keen to hold gold in the current environment,” Warren Patterson, head of commodities strategy at ING, told me.

The Break: Gold prices rallied in early March as fears of the fallout from Russia’s invasion of Ukraine grew. Since then, however, other market dynamics have emerged.

Call it the Fed effect. The central bank is aggressively raising interest rates in an attempt to lower inflation, which remains very high, especially as the war in Ukraine pushes up food and energy prices.

The Federal Reserve on Wednesday raised rates by three-quarters of a percentage point at its third consecutive meeting, an unprecedented move. He also indicated that significant increases could be on the table in November and December.

The move pushed the US dollar to a new two-decade high. The greenback is up 16% against a basket of major currencies this year, a sharp rise.

Such moves hurt stocks. But they are also affecting gold.

That’s partly because commodity transactions, including gold and other precious metals, typically take place in dollars. A stronger currency makes it more expensive for foreign investors to buy, and can reduce demand, pushing prices down.

Another factor is the impact of the Fed’s tough rate hike cycle on US government bonds. Yields on these bonds, which move against prices, have risen as the Fed has tightened policy. The yield on the benchmark 10-year US Treasury was last at 3.77%, down from around 1.5% earlier this year.

Gold also competes with government bonds as a safe haven investment. And when investors can get better returns on the latter, the former becomes much less attractive.

Patterson said, “If interest rates are going up, what would you rather be holding, gold or something that’s going to give you a yield?”

A sign of the times: central banks made it clear this week that they have no intention of changing their stance anytime soon, presenting the task of controlling inflation as a priority.

After the Fed announced its latest rate hike, others followed suit. The Bank of England raised UK rates to their highest level since 2008. Sweden, Indonesia, Vietnam, Norway and Switzerland also rose.

This means that gold is unlikely to initiate a comeback in the near term. For that to happen, the picture of inflation would have to change, Patterson said.

“This week has been really successful,” he said. “You’re seeing monetary tightening from most of the central banks out there.”

Investors hate UK tax cut bet

The British pound fell on Friday after the UK government unveiled its bid to pull the economy out of recession with a plan that includes cutting taxes, capping bankers’ allowances and increasing borrowing.

Here: Finance Minister Kwasi Kwarteng said the government needed “a new vision for a new era, focused on growth”.

He said the government would cut personal income taxes and cancel plans to raise corporate taxes next spring. At the same time, Kwarteng said the government will go ahead with plans to subsidize the energy bills of millions of homes and businesses.

But the UK will need to issue significantly more debt to finance this plan, investors are concerned. The country plans to borrow $82 trillion more than it had planned this spring, the UK Treasury said.

The measures come a day after the Bank of England warned the country was likely in recession, raising interest rates for the seventh time since December last year as part of efforts to tame deeply costly inflation. life crisis for millions of people.

Investors were already concerned that the country was spending beyond its means. The Institute for Fiscal Studies warned in a report on Wednesday that government borrowing was on an “unsustainable path”.

Investor view: The pound sank almost 2% to $1.10 on Friday after Kwarteng’s announcement, hitting its lowest level since 1985.

British government bonds also sold heavily. The yield on the benchmark 10-year bond is close to 3.78%. The year started below 1%.

People like to buy things in bulk now

When people are looking at their wallet, they are more likely to look for deals. That means they are going there Costco (COST)where they can buy products in bulk cheaply.

The company said Thursday that revenue for its most recent quarter, which ended in August, rose more than 15 percent to $72 billion.

What is Costco looking at? Richard Galanti, the company’s chief financial officer, said there was “some light at the end of the tunnel” about the price hike.

Speaking to the company’s vast network of suppliers, there are signs that costs are coming down. Makers of outdoor patio furniture and grills, for example, are benefiting from lower steel prices. The cost of shipping containers has also come down, making it easier to find boxes.

“At least we are seeing that things are going in the right direction,” said Galanti.

In the meantime, Costco plans to leverage its size to remain competitive on prices and continue to grow sales. Membership costs will remain the same for now, but may increase in the future if necessary, Galanti said. Competitor Sam’s Club recently raised membership fees.

“We still have that arrow quivering as we move forward,” Galanti said. Shares fell 3% in premarket trading.

the next

The US PMI for September, which looks at the health of the manufacturing and services sectors, is released at 9:45 am.

Next week: third quarter ends. The S&P 500 has lost 0.7% since the start of July. This represents continued uncertainty, but would represent an improvement over the 16% loss in the second quarter.