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U.S. Stocks Rise, Gold Drops Most Since 2008

By Jeff Sutherland & Rita Nazareth - 2011-08-24T21:03:05Z

Gold fell the most since 2008 and Treasuries dropped as U.S. stocks and the dollar rose after reports on durable-goods orders and home prices beat estimates.

Gold futures slumped 5.5 percent to $1,758.90 an ounce in after-hours trading at 4:38 p.m. in New York. Prices surpassed $1,900 for the first time ever this week. The Standard & Poor’s 500 Index climbed 1.3 percent to 1,177.60, building on yesterday’s 3.4 percent surge. Treasuries dropped, driving yields on 10-year notes up 14 basis points to 2.30 percent. The U.S. currency gained versus all of its 16 major peers, and the Dollar Index rallied 0.2 percent after declining 0.3 percent.

Stocks swung between gains and losses, with the S&P 500 rebounding from a 0.5 percent decline, as trading was swayed more than usual by levels watched by so-called technical analysts as investors await an Aug. 26 speech by Federal Reserve Chairman Ben S. Bernanke in Jackson Hole, Wyoming. Gold retreated amid speculation financial markets are stabilizing.

“Any time you see life in the walking dead, it certainly makes you feel a lot better,” Bruce McCain, who helps oversee $22 billion as chief investment strategist at the private- banking unit of KeyCorp in Cleveland, said in a telephone interview. “If investors can be reassured that a disaster is not imminent, that’s good for the market and the industries that got hammered lately.”

Contrasting Reports

The reports on goods meant to last at least three years and housing prices contrasted with data this month on jobless claims, consumer confidence and manufacturing that spurred concern the U.S. is poised for a recession. The S&P 500 lost 15 percent between April 29 and yesterday, with the retreat accelerating in July after a debate in Congress on how to cut the budget deficit spurred S&P to strip the government of its AAA credit rating.

A rally earlier today lost momentum after the S&P 500 rose to about 1,173, its closing level after gains of 4.7 percent on Aug. 9 and 4.6 percent on Aug. 11. The index surged yesterday after falling to 1,121.09 the day before, within 2 points of its 11-month closing low of 1,119.46, reached Aug. 8.

“Resistance came in pretty much where you would expect to see it followed by a predictable pullback to last night’s close,” Michael Shaoul, chairman of Marketfield Asset Management in New York, said in an e-mail. His firm oversees $1 billion. “The most likely outcome is still a retracement of the majority of yesterday’s gains in the U.S., but if the S&P 500 could move back up above 1,170-1,175 again, maybe you’d get the shorts under some pressure.”

Financial stocks in the S&P 500 rose 2.8 percent, the most within 10 groups. Bank of America Corp. surged 11 percent as Meredith Whitney, who predicted Citigroup Inc.’s dividend cut three years ago, said it has no urgent need to raise capital. Newmont Mining Corp. fell 1.6 percent as gold sank.

Gold Tumbles

Gold dropped as yesterday’s rally in stocks eroded the appeal of the precious metal as a haven. The metal plunged 5.6 percent in regular trading to settle at $1,757.30, its biggest drop since March 2008. It has tumbled after peaking at a record $1,917.90 an ounce yesterday.

“Gold is where people are hiding versus the stock market, so as the stock market stabilizes or improves, you will see gold sell off,” Mark Bronzo, who helps manage $26 billion at Security Global Investors in Irvington, New York, said in an e- mail. “The markets will continue to be volatile as we head into Friday and Bernanke’s speech.”

Bernanke and other central bankers are meeting in Jackson Hole for an annual conference sponsored by the Fed Bank of Kansas City. Bernanke’s hint of a second round of asset purchases, or quantitative easing, during the same event last year spurred an eight-month rally in the S&P 500.

Renewed Optimism

Treasuries fell, with yields on the 10-year note reaching 2.30 percent, as the durable-goods report renewed optimism that the U.S. economic recovery may accelerate. The Treasury sold $35 billion in five-year notes at a record low auction yield today. The sale is the second of three note auctions this week totaling $99 billion.

The euro lost 0.2 percent to $1.4414. The U.S. currency climbed 0.4 percent against the Swiss franc. Currencies of higher-yielding countries including New Zealand and South Africa fell as U.S. stocks fluctuated, damping risk appetite.

The yen fell 0.4 percent against the dollar and 0.3 percent against the euro and as Japan took steps to help companies cope with the currency’s strength. Officials will release $100 billion to fund loans by Japan Bank for International Cooperation, Finance Minister Yoshihiko Noda told reporters in Tokyo. JBIC, as the lender is known, is a state-run export credit agency.

Japan Credit

Moody’s Investors Service cut Japan’s credit rating by one step, saying “weak” prospects for growth will make it difficult to tackle public debt. The company put the nation’s debt on review for a downgrade in May, calling on the government to step up its efforts to narrow the budget gap.

Crude oil dipped 0.3 percent to $85.16 a barrel as the plunge in gold and rise of the dollar curbed investor interest in raw materials. Futures were up as much as 1.4 percent after an Energy Department report showed U.S. inventories unexpectedly declined as refinery operations matched a one-year high.

The Stoxx Europe 600 Index added 1.4 percent after dropping as much as 0.6 percent earlier, even as data showed German business confidence fell to its lowest in more than a year. The index is up 3 percent for the week. WPP Plc, the world’s biggest advertising agency, climbed 7.4 percent after reporting earnings that beat estimates. Heineken NV tumbled 7.6 percent as the third-largest brewer by volume said profit is unlikely to grow this year.

Rates on Greek two-year notes soared to the highest level since the euro was introduced. Yields climbed 4.4 percentage points to 44.03 percent on concern the nation’s second bailout will be delayed as its euro-region partners squabble over a collateral deal. Greek yields have surged since Finland said on Aug. 16 it secured a collateral deal to ensure its contribution would be repaid, garnering criticism from other euro-area nations.

To contact the reporters on this story: Jeff Sutherland in New York at jsutherlan13@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Enlarge image

U.S. Stocks Rise, Gold Drops Most Since 2008

Richard Drew/AP

Specialists Vincent Folds, left, and WIliam Bott work on the floor of the New York Stock Exchange on Aug. 24, 2011.

Specialists Vincent Folds, left, and WIliam Bott work on the floor of the New York Stock Exchange on Aug. 24, 2011. Photographer: Richard Drew/AP