Gold rose on Monday as fears about the solvency of Chinese property group Evergrande sparked a flight to safe-haven assets, but gains were capped by strength in the dollar ahead of the U.S. Federal Reserve’s policy meeting.
· Spot gold rose 0.5% to $1,762.66 per ounce.
· U.S. gold futures settled 0.8% higher at $1,765.40.
· Investors are rushing to the safety of bonds as fears grow of a default by Evergrande, driving a drop in yields that is helping gold, said Bart Melek, head of commodity strategies at TD Securities.
“People are reacting to what’s happening in China but this week’s Fed’s meeting is also important. Anything suggesting a fairly earlier tapering would be out of consensus and that would mean a pretty significant correction in gold prices,” Melek said.
· The Fed’s Open Market Committee meets on Sept. 21-22.
· Gold is considered as a hedge against inflation and currency debasement likely resulting from the widespread stimulus. A hawkish move by the Fed would, hence, diminish gold’s appeal, while an eventual interest rate hike would also raise the opportunity cost of holding the non-interest bearing asset.
· World shares were lower as investors fretted about the spillover risk to the global economy from Evergrande’s troubles.
· “No doubt those fears of systemic risk ... may well be feeding into the market,” independent consultant Robin Bhar said. “We typically see flows into the dollar, into gold, into the yen when investors are worried.”
But denting gold’s appeal for holders of other currencies, the dollar index hit a near one-month high.
· Silver fell 0.7% to $22.23 per ounce, its lowest since November 2020.
· Platinum dropped 3.5% to $908.52 per ounce, while palladium shed 6.4%, the most since mid-June, to $1,888.24.
· Prices of the auto catalysts are unlikely to rebound until the demand environment starts looking better, Melek said.
· 10-year Treasury yield slides below 1.31% as investors crowd into bonds amid sell-off
U.S. Treasury prices jumped and yields declined as investors rushed into the safety of U.S. government bonds amid a global sell-off in financial markets.
At 4:10 p.m. ET, the yield on the benchmark 10-year Treasury note dropped nearly 6 basis points to 1.311% and the yield on the 30-year Treasury bond fell nearly 6 basis points to 1.846%. Yields move inversely to prices.
China’s second-largest property developer, Evergrande, is on the brink of default and sending shockwaves across markets as some analysts warn the pain that could come from its collapse would extend beyond China.
· Evergrande nerves weigh on offshore yuan, dollar edges up on safety bid
The offshore Chinese yuan weakened versus the greenback to its lowest level in nearly a month on Monday, as worries about the repercussions from property developer Evergrande’s solvency issues spooked financial markets and lifted safe-haven currencies.
Market sentiment has been rattled by the potential contagion from Evergrande, which is trying to raise funds to pay a host of lenders, suppliers and investors. A deadline for an $83.5 million interest payment on one of its bonds is due on Thursday, and the company has $305 billion in liabilities.
The dollar index rose 0.025%, with the euro unchanged at $1.1725.
Aside from the Fed, multiple central banks around the globe will hold policy meetings this week, including those of Sweden, England, and Norway.
The Japanese yen strengthened 0.58% versus the greenback at 109.32 per dollar.
On foreign exchange markets, traders turned to the safe haven of the greenback which touched a four-week high on the dollar index at 93.4.
· Global sell-off, BoE uncertainty, gas prices push sterling lower
Sterling hit a one-month low against the dollar on Monday as a global sell-off prompted by China’s struggling Evergrande hit risk-oriented currencies while uncertainties about the Bank of England’s monetary policy and surging gas prices also weighed.
The pound was 0.49% lower against the dollar at $1.3659, its lowest level since Aug. 23.
The Domestic factors were also at play for the British currency, with the surge in gas prices causing an additional headwind.
Britain is considering offering state-backed loans to energy firms after wholesale gas prices soared, prompting big suppliers to ask for support from the government to cover the cost of taking on customers from companies that have gone bust.
Another headache for traders were the uncertainties linked to what could emerge about the future of monetary policy at the Bank of England meeting on Thursday.
· Bitcoin drops as much as 10% as risky assets tumble globally
The price of bitcoin dropped sharply Monday as investors began shedding risk amid a global equity markets decline.
In cryptocurrencies, bitcoin last fell 7.76% to $43,577.67.
Market capitalization of the cryptocurrency market dropped 10% on Monday to under $1.94 trillion, from last Saturday’s $2.17 trillion.
· The global economy could feel the effects of China’s Evergrande crisis.
A liquidity crisis at a large Chinese property developer has shaken global markets, and strategists say it could send ripples across the global economy.
But they also say the issue will likely be contained by the Chinese government before it wreaks damage in the banking system, and it is not expected to lead to a broader global financial contagion.
Investors have worried that Beijing is likely to let the company fail, wounding stockholders and domestic bondholders. Evergrande faces a debt payment on its offshore bonds on Thursday, after it said last week it was facing unprecedented difficulties.
Market pros don’t think that Evergrande could lead to the next financial crisis, but it could lead to more volatility.
There is concern the already slowing China economy will be affected further and that could flow into other economies.
Chang said the Chinese government needs to act quickly since Evergrande is beginning to affect sentiment, after being ignored by global markets.
· Another weak U.S. jobs report may be ahead, JPM data suggests
A JPMorgan model that came closer than virtually all other forecasts in predicting last month's big U.S. employment report shortfall is pointing to another weak jobs number for September as consumers appear to have dialed back their travel and leisure spending since Labor Day.
The jobs tracker created by the bank's quantitative research team, fed by a range of alternative data including Chase credit card usage and airport security check volumes, suggests that September job growth will come in at 333,000. That would be far from the kind of rebound from August's disappointing job growth of just 235,000 - the lowest total since January - that policymakers at the Federal Reserve and elsewhere are hoping for.
· Democrats, Republicans head for showdown on U.S. debt limit
· Australia PM Morrison says trade talks with EU will take time
Australia Prime Minister Scott Morrison on Tuesday said any trade talks with the European Union will be worked through in “the weeks and months ahead” as he deals with fallout of the decision to cancel a $40 billion submarine deal with France.
Thai
Eng