Gold Surges as Global Stocks Gain, Dollar Weakens on FedJacob Barach and Jeremy Herron
Gold rose the most since September as the dollar weakened, while global stocks advanced to a record after the Federal Reserve said rates will remain low as the economy grows. Emerging-market currencies climbed.
Gold futures rallied 3.3 percent and the Bloomberg Dollar Spot Index dropped to its lowest level in almost a month. The Standard & Poor’s 500 Index gained 0.1 percent to extend an all-time high at 4 p.m. in New York, and the MSCI All-Country World Index climbed 0.5 percent. Ten-year Treasury yields added four basis points to 2.63 percent after plunging yesterday. Brent crude rose to a nine-month high.
Fed Chair Janet Yellen said yesterday she expects rates to stay low for a “considerable time” after monthly bond purchases end. Policy makers reduced long-term estimates for growth and interest rates, while also cutting purchases by $10 billion. Reports today showed signs of steady progress in the U.S. labor market and improving consumer confidence. President Barack Obama said he’s sending as many as 300 U.S. military advisers to assist the Iraqi army battle an insurgency.
“People perceived what Yellen said yesterday as less hawkish, and that’s bringing in money to the gold market,” Scott Gardner, who helps manage $450 million at Verdmont Capital SA in Panama City, said in a telephone interview. “The dollar is moving lower, and gold is gaining because of that.”
Gold futures for August delivery rose 3.3 percent to settle at $1,314.10 in New York. Last year, gold fell 28 percent after some investors lost faith in the precious metal as a store of value amid an equity rally and muted inflation. Silver surged to a 13-week high.
Yellen told reporters at the end of a two-day meeting in Washington yesterday that accommodative monetary policy, rising home and equity prices and the improving global economy should help stoke above-trend growth in the U.S. Yellen emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation.
The Conference Board’s U.S. leading economic indicators gauge, a measure of the outlook for the next three to six months, increased 0.5 percent in May after a 0.3 percent gain in April, the New York-based group said today.
Other reports todays showed fewer Americans filed applications for unemployment insurance payments last week and consumer confidence improved.
The MSCI All-Country World Index, one of the broadest measures of global equities, added 0.5 percent to a record. The Stoxx Europe 600 Index rose 0.6 percent as all 19 industry groups in the regional benchmark advanced. The MSCI AC Asia Pacific Index added 1.2 percent.
Among stocks moving in the U.S. today, BlackBerry Ltd. jumped 9.7 percent after reporting a narrower loss than analysts had projected. Red Hat Inc. advanced 2.9 percent after increasing its annual revenue forecast. Starbucks Corp. climbed 2.2 percent after UBS AG boosted its rating on the world’s largest coffee-shop chain.
“People are really taking a more constructive view to see what happens with the market here going forward,” Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, said by phone. “I think you have to see if the trend continues.”
The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options prices known as the VIX, fell yesterday to the lowest since February 2007. It was little changed today at 10.66.
Commodities rallied for a sixth day, with the S&P GSCI gauge of 24 raw materials climbing 0.7 percent to the highest since August. Zinc for delivery in three months climbed 0.8 percent to the highest level in almost 16 months in London on concern production will fail to keep up with demand amid supply curbs and shrinking inventories. Aluminum and lead rose.
Crude advanced after a government report showed U.S. inventories shrank and amid concern that violence in Iraq will disrupt supplies.
Iraqi security forces expelled the rebel Islamic State in Iraq and the Levant, an al-Qaeda breakaway, from the Baiji refinery after overnight fighting, according to a police command statement. Exxon Mobil Corp. and BP Plc began removing employees from the country. Brent’s premium over WTI increased for a fourth day.
U.S. equities briefly extended losses today after Obama said he is prepared to take additional “targeted, precise” action in Iraq if necessary. The S&P 500 fell 0.7 percent last week as violence in Iraq pushed oil prices higher.
“The market is digesting the information regarding the Federal Reserve,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $160 billion in assets, said by phone. “We think this is a seriously dovish statement from the Federal Reserve and that the Fed is willing to accept inflation well above 2 percent before any action will be taken. The overall broader markets are sniffing that out.”
Currencies jumped versus the dollar as a slump in foreign-exchange volatility to a record boosted demand for higher-yielding assets. The Philippine peso, Malaysian ringgit and Indonesian rupiah gained at least 0.5 percent versus the U.S. currency.
JPMorgan Chase & Co.’s Global FX Volatility Index fell to 5.57 percent, the least since Bloomberg started collecting the data in 1992, helping fuel demand for carry trades, where investors seek to profit from differences in interest rates.
The euro gained 0.1 percent $1.36036, after climbing 0.4 percent yesterday. The dollar was little changed versus the yen.
Spain’s 10-year rate tumbled four basis points to 2.72. Australia’s 10-year yield declined eight basis points to 3.67 percent after earlier sliding to 3.64 percent, the lowest since May 29. Germany’s 10-year bund yield fell five basis points to 1.32 percent after sliding to 1.30 percent on May 16, the least in more than a year.
The search for yield amid low borrowing costs could sow the seeds of a new crisis, the two newest members of the Bank of England’s Monetary Policy Committee said yesterday. Spain can borrow for 10 years at the same rate as Britain, said Kristin Forbes a professor at the Massachusetts Institute of Technology who will join the MPC next month.