Gold Falls with Stocks on Iran-Israel Escalation, Correlation Nears Record High
Wednesday, 10/02/2024 16:31
GOLD PRICES fell alongside stock markets and bond prices on Wednesday, trading 1.3% below last Thursday's new all-time high after rallying but failing to top that record against a rising US Dollar on news of Iran firing ballistic missiles at Israel in yesterday's dramatic escalation of the Middle East conflict.
"In the immediate-term," claims a note from analysts at Canadian brokers TD, "the prospect of a direct confrontation between Iran and Israel is driving even more capital towards gold."
But
investors have continued to take profit on gold at the latest new highs, while
consumer gold demand has been "crippled" worldwide by this year's surging prices, says Reuters.
Having
slipped from last week's new peaks in gold, the price of bullion spiked to new highs in Euro and UK Pounds on Tuesday's Iranian attack – "thwarted thanks to Israel's air defence array" according to Prime Minister Benjamin Netanyahu, with no injuries reported.
But gold failed to make a fresh record in most other currencies, including the Israeli Shekel and the Canadian as well as US Dollar.
“The way we look at it," says Swiss banking giant and London bullion clearing bank UBS' precious metals strategist Joni Teves, "geopolitical tensions
add to a list of reasons why investors would want to hold gold as part of their portfolio.
"[But] the immediate price reaction is not really straightforward."
With gold trading almost $10 lower per ounce from yesterday at $2658 around London's 3pm benchmarking auction, Western government bonds also fell in price Wednesday.
That pushed 10-year US Treasury yields up to the highest in a month at 3.81% per annum after the ADP Payrolls report said the world's largest economy added the most jobs in 3 months in September, denting expectations for another steep cut to Dollar interest rates from the Federal Reserve.
Global stock markets slipped too, hitting 1-week lows on the MSCI World Index after the US S&P500 index dropped on Tuesday from the prior day's fresh all-time high.
Gold and the US stock market have rarely been as closely correlated as they are today.
Tracking the strength of their co-movement day by day, the 12-month 'r' correlation of Dollar gold prices with the S&P500 now reads +0.90, the most positive 1-year relationship since the 250 trading days ending May 2011.
That correlation has only been greater on 130 of the past 13,484 trading days, first in the run-up to the USA abandoning the Dollar's gold convertibility in August 1971, then during the stock market's steep rally from the DotCom Crash in 2004, and then as gold approached its financial crisis peak 13 years ago.
While gold bullion has set 30 new Dollar records in 2024 so far – beating all full-year totals except 1979's
run-up to the big 1980 gold top and then 2011 and its run to $1920 – the S&P has set 43 new closing highs.
The S&P500 has now risen 20.4% year-to-date. The price of gold in Dollar terms has risen 8 percentage points faster. And
Giant gold-backed ETF trust fund the GLD expanded by 0.3% on Tuesday, putting its number of shares in issue at the highest in 3 sessions.
But the world's 2nd largest gold ETF, the iShares IAU, was unchanged after shrinking towards to a 2-week low in size, and investors using BullionVault continued to take profits on gold as a group, mapping the wider liquidation reported by coin retailers across Europe and the US.
Ahead of this Friday's government estimate for September's US payrolls growth, US job openings rose in August according to yesterday's Jolts data, but construction sector spending fell on the Census Bureau's first estimate.
Vehicle sales jumped in September, says Motor Intelligence Research, but manufacturing activity across the world's largest economy shrank for the 6th month running on the ISM's PMI survey, with the sector's new orders, employment and prices paid all lower.
Jumping to a new record €2419 per ounce late Tuesday, the price of gold in Euros today slipped back below €2400.
The
UK gold price in Pounds per ounce meantime slipped back below £2000 after spiking to a new high of £2419 on yesterday's Iranian missile-attack.
Silver held firmed than gold, trading unchanged for the week so far around $31.65.
"Iran made a big mistake tonight and it will pay for it," said Israel's Netanyahu on national TV after yesterday's missile attack.
"Tonight's operation will be repeated several times stronger," said Iran's armed forces chief Major General Mohammad Bagheri in Tehran, saying that the attack was provoked by Israel's military attacks on Lebanon, aimed at destroying the Hizbollah militant group while it continues to bombard Gaza in pursuit of Hamas.
"US naval destroyers joined Israeli air defence units in firing interceptors to shoot down in-bound missiles," said US National Security Advisor Jake Sullivan, while US President Joe Biden pledged "ironclad" support for Tel Aviv.
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