But gold prices did not rise. In fact, they are down about 20% from their recent March peak. This puts gold at the peak of a bear market.
“Investors don’t have much desire to hold gold in the current environment,” Warren Peterson, head of commodities strategy at ING, told me.
Breaking it down: Gold prices skyrocketed in early March as concerns over the fallout from Russia’s invasion of Ukraine mounted. Since then, however, other market dynamics have come to light.
This is called the feed effect. The central bank has been aggressively raising interest rates to tame inflation, which remains stubbornly high, especially as the war in Ukraine pushes up food and energy prices.
The move pushed the US dollar to a two-decade high. The greenback is up 16% against a basket of major currencies so far this year, a huge gain.
Those moves are hurting the stock. But they are also affecting gold.
This is partly because commodities, including gold and other precious metals, are usually traded in dollars. A strong currency makes it more expensive for foreign investors to buy, and can reduce demand by pushing prices down.
Another factor is the impact of the Fed’s tight hiking cycle on US government bonds. Yields on these bonds, which move inversely to prices, have risen as the Fed has tightened policy. The yield on the benchmark 10-year U.S. Treasury was last at 3.77%, up from about 1.5% at the start of the year.
Gold also competes with government bonds as a safe haven investment. And while investors can get better returns on the latter, the former looks much less attractive.
Patterson put it this way: “If you’re raising interest rates, what would you rather hold, gold or something that’s going to give you a yield?”
Sign of the times: This week made it clear that central banks do not intend to change their strategy anytime soon, putting the task of controlling inflation among their priorities.
This means that gold is unlikely to bounce back in the near term. For that to happen, the inflation picture will need to change, Patterson said.
“It really hit home this week,” he said. “You’re seeing monetary tightening across the board from most central banks out there.”
Investors Hate UK Tax Cuts Gambling
This just in: Finance Minister Kwasi Kwarteng said the government “needs a new vision for a new era, focused on development.”
He said the government would cut personal income taxes and cancel plans to raise business taxes next spring. At the same time, Kwarteng said the government would press ahead with plans to subsidize energy bills for millions of households and businesses.
But the UK would need to issue significantly more debt to finance the project, which worries investors. The UK Treasury said the country plans to borrow $82 billion more than it forecast in the spring.
The moves come a day after the Bank of England warned the country was already headed for recession as it raised interest rates for the seventh time since December last year, in a bid to curb inflation. Part of the effort comes at a steep cost. Crisis of life for millions of people.
Investors were already concerned that the country was spending more than its resources. The Institute for Fiscal Studies warned in a report on Wednesday that the government’s debt is on an “unsustainable path”.
Investor insight: The pound fell nearly 2% to $1.10 on Friday after Kwarteng’s announcement, its lowest level since 1985.
British government bonds also sold sharply. The yield on the benchmark 10-year bond is around 3.78 percent. It started the year below 1 percent.
People like to buy things in bulk at this time.
The company said Thursday that revenue for its most recent quarter ended in August rose more than 15 percent to $72 billion.
What is Costco looking at? Richard Galanti, the company’s chief financial officer, said there was “a little light at the end of the tunnel” on the price hike.
Speaking to the company’s extensive network of suppliers, there are indications that costs are coming down. Makers of outdoor patio furniture and grills, for example, are benefiting from lower steel prices. Shipping containers have also come down in price, and crates have become easier to find.
“At least we’re seeing things moving — starting to go — in the right direction,” Galanti said.
In the meantime, Costco plans to leverage its size to remain competitive on prices and continue to grow sales. Membership costs will remain the same for now, but may increase in the future if needed, Galanti said. Competitor Sam’s Club recently raised its membership fee.
“We still have that arrow in our quiver as we move forward,” Galanti said. Shares were down 3% in premarket trading.
The US Purchasing Managers’ Index for September, which provides a look at the health of the manufacturing and services sectors, posts at 9:45 a.m. ET.
Coming up next week: The third quarter ends. The S&P 500 is down 0.7% since the start of July. This indicates continued uncertainty, but would mark an improvement on the 16% loss applied during the second quarter.