The curious case of falling gold prices – CNN | Jewelry Dukan

But the price of gold has not increased. In fact, they’re down nearly 20% since their last March peak. That puts gold on the verge of a bear market.

“Investors don’t have much of an appetite to hold gold in the current environment,” Warren Patterson, head of commodity strategy at ING, told me.

Breakdown: Gold prices soared in early March as concerns grew over the fallout from Russia’s invasion of Ukraine. Since then, however, other market dynamics have come to the fore.

Call it the Fed Effect. The central bank has been aggressively raising interest rates to stem inflation, which remains stubbornly high, especially as the war in Ukraine is pushing up food and energy prices.

The Federal Reserve hiked interest rates by three-quarters of a percentage point at its third straight meeting on Wednesday, an unprecedented move. It also signaled that significant hikes could be on the table in November and December.

This action propelled the US dollar to a new two-decade high. The greenback is up 16% so far this year against a basket of major currencies, a huge jump.

These moves have hurt stocks. But they also affect gold.

That’s partly because transactions in commodities, including gold and other precious metals, are typically denominated in dollars. A stronger currency makes it more expensive for foreign investors to buy in and can reduce demand and depress prices.

Another factor is the impact of the Fed’s tough tightening cycle on US Treasuries. Yields on these bonds, which move inversely to prices, have skyrocketed as the Fed tightened monetary policy. The benchmark 10-year Treasury yield was last at 3.77%, up from around 1.5% at the start of the year.

Gold also competes with government bonds as a safe haven asset. And if investors can get better returns from the latter, the former looks far less attractive.

As Patterson put it, “If you raise interest rates, what would you rather hold, gold or something that gives you a yield?”

Sign of the times: This week made it clear that central banks are not planning to change course any time soon and that the task of getting inflation under control is their priority.

After the Fed announced its latest rate hike, more followed. The Bank of England pushed interest rates in the UK to their highest level since 2008. Sweden, Indonesia, Vietnam, Norway and Switzerland also rose.

That means gold is unlikely to make a comeback any time soon. For that to happen, the picture of inflation would have to change, Patterson said.

“It’s really a hit this week,” he said. “You’re seeing monetary tightening across the board from most central banks out there.”

Investors hate the UK tax cut game

The pound tumbled on Friday after the UK government unveiled its bid to bail out the economy from recession with a plan including tax cuts, the lifting of a cap on bankers’ bonuses and a large increase in borrowing.

This just arrived: Finance Minister Kwasi Kwarteng said the government needed a “new approach for a new era, geared towards growth”.

He said the government will cut personal income taxes and scrap plans to increase corporate taxes next spring. At the same time, Kwarteng said the government will move ahead with plans to subsidize energy bills for millions of homes and businesses.

But the UK will need to take on significantly more debt to fund this plan, which has investors worried. The country plans to borrow $82 billion more than forecast last spring, Britain’s Treasury Department said.

The measures come just a day after the Bank of England warned that the country is likely already in recession as it hiked interest rates for the seventh time since December last year, part of a bid to tame inflation, which causes high costs. life crisis for millions of people.

Investors were already concerned that the country was spending beyond its means. The Institute for Fiscal Studies warned in a report on Wednesday that government borrowing is on an “unsustainable path”.

Investor Insight: The pound fell nearly 2% to $1.10 on Friday after Kwarteng’s announcement, hitting its lowest level since 1985.

British government bonds were also sold off heavily. The yield on the 10-year benchmark bond is nearly 3.78%. He started the year below 1%.

People now like to buy bulk goods

When people watch their wallets, they are more inclined to look for deals. That means they are on their way Costco (COSTS)where you can buy items in large quantities cheaply.

The company announced Thursday that revenue rose more than 15% to $72 billion for the most recent quarter that ended in August.

What does Costco see? Richard Galanti, the company’s chief financial officer, said there is “a little light at the end of the tunnel” when it comes to price increases.

In talks with the company’s vast network of suppliers, there are signs that costs are coming down. Manufacturers of garden furniture and barbecues, for example, benefit from lower steel prices. The cost of shipping containers is also down, and it’s easier to find crates.

“At least we can see that things are going in the right direction — starting to develop,” Galanti said.

In the meantime, Costco plans to use its scale to stay price-competitive and continue to grow sales. Membership costs remain the same for now, but could increase in the future if needed, Galanti said. Competitor Sam’s Club recently increased its membership fees.

“We still have that arrow in our quiver going forward,” Galanti said. Shares are down 3% in premarket trading.

Next

The September US Purchasing Managers’ Index, which provides an overview of the health of the manufacturing and service sectors, is released at 9:45 am ET.

Coming next week: The third quarter ends. The S&P 500 is down 0.7% since early July. This signals continued uncertainty, but would mark an improvement from the 16% loss recorded in the second quarter.

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