Gold as an investment

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Sep 23, 2022

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Equities

Canada’s main stock index fell early Friday alongside global markets as high price pressures continue to fuel concern about aggressive rate moves. On Wall Street, key indexes toppled in the wake of a hotter-than-expected reading on U.S. inflation.

At 9:33 a.m. ET, the Toronto Stock Exchange’s SP/TSX composite index was down 233.73 points, or 1.14 per cent, at 20,330.16.

The Dow Jones Industrial Average fell 219.27 points, or 0.68 per cent, at the open to 32,053.52.

The SP 500 opened lower by 43.43 points, or 1.08 per cent, at 3,974.39, while the Nasdaq Composite dropped 210.34 points, or 1.79 per cent, to 11,543.88 at the opening bell.

Figures released ahead of the start of trading, showed the annual rate of inflation in the United States running hotter than expected. In May, the annual rate hit a 40-year-high of 8.6 per cent, more than the 8.3-per-cent economists had been predicting. On a month-to-month basis, prices jumped 1 per cent from April to May, a rise from the 0.3% increase from March to April.

Excluding the volatile food and energy components, the U.S. consumer price index rose 0.6 per cent after advancing by the same margin in April. The core CPI increased 6 per cent in the 12-months through May. That followed a 6.2 per cent rise in April.

“Overall, this adds upside risk to our existing target for fed funds rate,” CIBC economist Katherine Judge said.

“The contribution to inflation from shelter is of key concern for the Fed given its stickiness, and with gasoline prices on a sharply higher trajectory in June, the Fed will remain on track to raise rates by 50 basis points at next week’s FOMC.”

The Federal Reserve makes its next rate decision on June 15.

In this country, markets got jobs figures ahead of the opening bell.

Statistics Canada says the Canadian economy added nearly 40,000 new positions last month. Economists had been forecasting a gain of about 27,500 jobs. The jobless rate ticked lower to 5.1 per cent from 5.2 per cent a month earlier.

On Thursday, Bank of Canada Governor Tiff Macklem said the central bank may need to raise its benchmark interest rate to 3 per cent or above to bring inflation under control, and that the bank’s governing council is open to larger rate increases if needed. The comments echoed similar remarks deputy governor Paul Beaudry last week.

On the corporate side, Canada’s antitrust regulator wants to speed up its case against Rogers Communications Inc.’s $26-billion purchase of Shaw Communications Inc. with a process that would schedule a dispute hearing in five to six months. A spokesperson for the Competition Bureau Canada told Reuters the competition commissioner wants to follow an expedited process. The competition tribunal’s website says this would mean a hearing in five to six months.

Overseas, the pan-European STOXX 600 was down 1.40 per cent by midday. Britain’s FTSE 100 fell 1.19 per cent. Germany’s DAX and France’s CAC 40 were off 1.14 per cent and 1.34 per cent, respectively.

In Asia, Japan’s Nikkei closed down 1.49 per cent. Hong Kong’s Hang Seng slid 0.29 per cent.

Commodities

Crude prices gave up early gains with concerns about new COVID-19 lockdowns in Shanghai weighing on sentiment while solid U.S. demand continues provide some support.

The day range on Brent is US$123.45 to US$121.60. The range on West Texas Intermediate is US$121.91 to US$120.09. Earlier this week, both benchmarks saw their best levels since March. Brent is on track for its fourth consecutive weekly gain. WTI is set for its seventh weekly advance.

“Oil markets probably have more downside risk in the short-term, with another wave of China slowdown fears capping the upside,” OANDA senior analyst Jeffrey Halley said.

“Any losses are going to be limited though, as the physical tightness of both crude and refined products globally remain powerful supportive factors. Weekend event risk should also limit pullbacks,” he said.

New COVID-19 lockdowns were imposed on parts of Shanghai as it prepares for a round of mass testing for millions of residents. That move came just days after Shanghai and Beijing began easing controls.

Concerns about the impact of those measures, however, have been offset somewhat by continued rising demand in the United States.

“The summer driving season in the U.S. is seeing record surges in gasoline and diesel consumption, although comparable surges in pump prices, next to low stocks, point to a market vulnerable to supply disruption and concerns about a sharp drop-off in demand, once peak demand season fades,” analysts at Fitch Solutions said in a note.

In other commodities, gold prices looked set for a modest weekly decline.

Spot gold eased 0.1 per cent to US$1,846.30 per ounce by early Friday morning, while U.S. gold futures fell 0.2 per cent to US$1,849.50.

“Gold’s main hope for a directional breakout rests with U.S. Inflation data moving the U.S. dollar materially one way or the other,” Mr. Halley said. “In the meantime, bring a good book.”

Currencies

The Canadian dollar pulled back in early trading while its U.S. counterpart held steady against a basket of world currencies.

The day range on the loonie is 78.56 US cents to 78.87 US cents.

Key for the loonie will be May U.S. jobs figures, due at 8:30 a.m. ET. U.S. markets get new inflation figures at the same time.

On world markets, the U.S. dollar index, which measures the greenback against six peers, was unchanged at 103.29. However, the index was still positive for the week, buoyed by continued concerns about the global economy.

The Japanese yen, meanwhile, jumped after the government and central bank issued a rare joint statement expressing concerns about that currency’s recent slide to a two-decade low against the greenback.

After a meeting with his Bank of Japan (BOJ) counterpart, the country’s top currency diplomat Masato Kanda told reporters that Tokyo will take appropriate action as needed, a sign Japan may be edging closer to intervening in the market in a bid to arrest the yen’s declines, according to a Reuters report.

The yen rallied to as strong as 133.37 yen per U.S. dollar, up 0.7 per cent on the session, before settling at 133.67. On Thursday, the yen fell as low as 134.56, levels not seen since early 2002, according to Reuters figures.

More company news

Discount U.S. airline JetBlue launched its service to Canada with the first flight arriving this evening in Vancouver from New York’s JFK International Airport. The New York-based airline, which announced the new route more than a year ago, says it is the only carrier to serve the western Canadian city with non-stop service from JFK. However, JetBlue will be competing with other U.S. airlines as well as Canadian airlines, including Air Canada, WestJet Airlines and Flair Airlines, that either offer direct flights to other New York airports or through connections to JFK.

Economic news

(8:30 a.m. ET) Canadian employment for May.

(8:30 a.m. ET) U.S. CPI for May.

(10 a.m. ET) U.S. quarterly services survey for Q1.

(10 a.m. ET) U.S. University of Michigan Consumer Sentiment for June.

With Reuters and The Canadian Press


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