GOLD: Gold Clears $4000 As Global Uncertainties Mount, More Fed Comments Later
Gold has tested psychological round number resistance at $4000 and decisively breached it reaching a record high of $4014.62 driven by political instability in the G7 that may not be resolved imminently. Issues in heavily indebted US, France and Japan are driving safe-haven flows, but ETF and central bank buying are providing structural support and geopolitics, US rate cuts and threats to Fed independence have also driven buying of gold. The US dollar (BBDXY +0.2%) has strengthened again today and yields are little changed, but gold’s rally is immune.
- Bullion is currently up 0.7% to around $4012.0/oz. Given it has rallied 4% so far this month and over 16% since 1 September, the risk of a pause in the uptrend is growing.
- The US shutdown is not just an issue for political stability but it also weighs on growth and government-issued data is being delayed making it difficult to gauge the economic situation ahead of the 29 October Fed decision. The OIS market has almost a full 25bp rate cut priced in for the meeting, despite a lack of data.
- Silver is outperforming gold after Tuesday’s underperformance. It is up 1.2% to $48.40, after a high of $48.46. It will also be benefiting from flight-to-quality flows as well as a tight physical market.
- Later the Fed’s Musalem, Barr, Goolsbee, Kashkari and the ECB’s Lagarde, Elderson, Buch, Tuominen and BoE’s Pill speak. The September FOMC meeting minutes will also be published.
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US STOCKS: Russell - Benefits From A Potential Rate Cutting Cycle
The Russell 2000 Friday night range was 2366.784 - 2407.373, closing +0.48%. The Russell 2000 continues to build on its break back above 2300, the cooling labour market pointing to more rate cuts potentially coming. This scenario could see some further rotation back into small caps which will benefit the most from a new rate cutting cycle. The market will be laser focused on the all-time highs just above 2450, a break of which could trigger another wave of short covering.
- There are some large shorts still being held by hedge funds in the Russell which CFTC data shows has already started to be reduced in recent weeks.
- A large portion of these shorts would be held against longs in other sectors, so look for some more rotation back into small caps.
- CFTC data shows leveraged funds only slightly pared back their shorts last week to -76948( previously -78059). See Graph below.
Fig 1: Russell 2000 Weekly Chart
Source: MNI - Market News/Bloomberg Finance L.P
CHINA PRESS: Household Deposit Migration Not Driving Rally - Guan
Non-bank financial institutions have contributed more to China's recent market rally rather than household deposit migration, despite household deposits falling by CNY1.11 trillion in July, according to Guan Tao, former senior official at the State Administration of Foreign Exchange (SAFE). Residents savings have declined every July since 2009, reflecting seasonal factors rather than structural shifts, Guan said. He cautioned that attributing market movements to household deposits was reductive, noting that in April, deposits dropped by CNY1.39 trillion, an even larger fall than in July, yet the Wind All A Index fell 3.2%.
CHINA PRESS: Former CSRC Head Under Investigation
The former chairman at the China Securities Regulatory Commission (CSRC), Yi Huiman, has come under investigation for serious violations of discipline and law, the Central Commission for Discipline Inspection has announced. Yi, who stepped down from the CSRC chairmanship in February 2024 after a five-year tenure, had been serving as deputy director of the Economic Affairs Committee of the 14th National Committee of the Chinese People’s Political Consultative Conference (CPPCC).
