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Gold came under some selling pressure earlier today but has rebounded and is trading $7 higher to $2524 in what would be the highest daily close ever.

Since hitting an intraday record high of $2531 last week, the noise around the gold market has been remarkably quiet, which is a good thing in a bull market.

Why many are struggling to buy gold, despite imminent Fed rate cuts, is that the causes of the gold rally aren’t clear. A big one is that the US weaponized the dollar following Russia’s invasion of Ukraine and that’s compelling — especially with China’s central bank building gold reserves — but there’s an equally compelling reason for gold.

The simple case for gold

Say you’re a wealthy Chinese investor sitting on cash, what do you do?

1) Real estate

This was the obvious answer for decades. Money piled into real estate, driving huge gains but ultimately building ghost cities and leading to a remarkable bubble that the government is actively trying to deflate. That’s led to falling prices and a reversal in the mania. Currently, it’s uninvestable.

2) Stock markets

There was once a time when Chinese equities offered great returns but those days are nearly a decade in the rear-view mirror. The Shanghai Composite is the worst-performing global index once again this year and has been dead money since 2015. High-flying tech companies are trading at absurdly low valuations but Beijing is determined to squeeze the life out of them. Again, uninvestible.

3) Commodities

Commodity investing in China took on some different characteristics than elsewhere with things like iron ore and rebar futures heavily traded. With the slump in the Chinese economy, those and others have been in bear markets, as have producers. Surely there are still trades available but the easy money is long gone and is certainly less popular.

4) What’s left?

Capital controls mean Chinese investors can’t invest in many places, though they’re trying. There have been some huge NAV dislocations in foreign-focused ETFs but the pickings are slim. The signal is that there is intense demand for some kind of diversification.

5) Gold

Not all the money is flowing into gold but physical gold is available in China and when you compare it to the alternatives, it shines brightly at the moment. Recent reports highlight higher import quotas for Chinese banks for investment gold and that’s a tell. The higher price is also creates its own momentum.

To me, there’s no mystery here — Chinese money will continue to flow into gold. Now that could chance if the government offers real stimulus, some backing for capital markets and/or help for real estate but until that happens, gold is doing its job as a safe store of value.

This article was written by Adam Button at www.forexlive.com.

White House spokesman Kirby said the US believes Iran is postured and poised to deliver an attack on Israel.

A couple weeks ago, there were reports of an ‘imminent’ attack on Israel that didn’t come to pass so I don’t believe the market is going to take this headline too seriously. If/when the attack does come, many have already concluded that it will be theatre, though I’m sure there will be the usual risk-off reaction initially.

This article was written by Adam Button at www.forexlive.com.

Today’s two-year US Treasury sale was a bit of a gut-check moment for the fixed income market. It was the first test of real-demand at sub-4% yields in this environment. The $69 billion was a big amount to swallow and European fixed income was soft today.

But the demand was there, proven by a 0.6 bps stop through compared to the when-issued market and a yield at 3.874% compared to 4.434% just a month ago. Initially, the market was stagnant but yields have now pressed lower in a sigh of relief.

With that, the US dollar is under fresh pressure and USD/JPY in particular is lower, now down 55 pips on the day to 143.95.

The euro has just gotten a fresh bid and run some stops too, up to 1.1181.

This article was written by Adam Button at www.forexlive.com.

• Prior was 4.434%
• On the run 2s were trading at 3.9245% shortly before the auction
• Bid to cover 2.68 vs 2.81 prior

That’s a strong auction and note that there has only been one tail at a regular 2-year auction in the past year. Even with much less yield than last month, the bidders were there. That bodes well for the 5s and 7s coming this week.

Over in the cash market, yields are down to 3.920%, which is the low of the day.

This article was written by Adam Button at www.forexlive.com.

Oil rallied 3.5% yesterday after Libya halted production and exports on the civil unrest in the country.

The old adage applied again: Never trust a geopolitical rally. There are times when they can work for a period — like the Russian invasion of Ukraine — but unless barrels are truly taken out of the market for an extended period, then the trade is to fade the rally.

Today, WTI is down $1.79 to $75.61 and near a session low.

Notably, CAD was a big outperformer yesterday on the oil rally but hasn’t given any of it back today.

This article was written by Adam Button at www.forexlive.com.

The front end is for sale today and this will be the first auction in awhile where the US Treasury can borrow at that tenor for less than 4%. Last month, 2s sold for 4.43% and today, we’re likely to track below 3.95%.

The last sales below 4% were in March/April 2023 on worries about US regional banks.

Look for solid bids as BMO notes that only one 2-year auction has tailed over the past year, and only by 0.4 bps. Last month, there was a 2.5 bps sto through, which was the largest since 2009 and proved to be wise as 4.43% certainly isn’t available today.

The bear case is that yields have moved down too quickly and aren’t yet justified with Fed funds still at 5.25-5.50%.

“On net, we’re biased
for solid end-user demand but will look for a small tail at 1pm EST,” BMO says.

This article was written by Adam Button at www.forexlive.com.

The UK returned from holiday today:

• Stoxx 600 +0.2%
• German DAX +0.4%
• Francis CAC -0.2%
• UK’s FTSE 100 +0.3%
• Spain’s IBEX +0.5%
• Italy’s FTSE MIB +0.3%

The DAX has been impressive since the early-August rout.

This article was written by Adam Button at www.forexlive.com.

The S&P 500 has rebounded into positive territory, up 0.2% after opening lower. Tech is leading the way with the Nasdaq Composite up 0.3% while the Russell 2000 remains down 0.5%. Top performers include Expedia, Costco and Netflix.

Laggards include American Airlines, Amazon and Walgreens.

Nvidia initially opened lower but has helped to turn the market and is up 1.9% ahead of tomorrow’s earnings report.

In general, there is a tight correlation between the Nasdaq and bitcoin but that’s broken down today. Bitcoin is near a session low and down 2.4% in a fade after last Wednesday’s break higher.

At times, bitcoin has led sentiment in equities so keep a close watch.

This article was written by Adam Button at www.forexlive.com.

• Prior was -0.1
• Revenue index +8.7 vs +7.7 prior

This article was written by Adam Button at www.forexlive.com.

US consumer confidence was better than expected at 103.3 compared to 100.7 expected. That was released at the same time as a softer Richmond Fed services index at -11 compared to +5 previously.

That led to little reaction in the FX as the dollar stayed softer on the day or slightly sagged. That was mirrored in the fixed income market as yields edged lower.

In the latest leg in markets, there is also some tepid equity buying and that could lead to further US dollar sales in a ‘risk on’ move. That said, much of the market is hunkering down ahead of NVDA earnings Wednesday after the close.

This article was written by Adam Button at www.forexlive.com.

• Consumer confidence 103.3 vs. 100.7 expected
• Present situation 134.4 vs. 133.1 prior.
• Expectations 82.5 vs. 81.1 prior.

“Overall consumer confidence rose in August but remained within the
narrow range that has prevailed over the past two years,” said Dana M. Peterson, Chief Economist at The Conference Board.
“Consumers continued to express mixed feelings in August. Compared to
July, they were more positive about business conditions, both current
and future, but also more concerned about the labor market.”

“Consumers’
assessments of the current labor situation, while still positive,
continued to weaken, and assessments of the labor market going forward
were more pessimistic. This likely reflects the recent increase in
unemployment. Consumers were also a bit less positive about future
income.”

This article was written by Giuseppe Dellamotta at www.forexlive.com.