Gold prices rose above a two-week high this morning, to pierce the $1,270 level and break upward through the 200-day moving average (200 DMA). This is the fourth session in a row that gold prices have rallied. Oil prices are also showing gains, as the recent dollar rally loses steam.
Spot gold was up as much as $10.80 an ounce in early trading, touching the $1,273.00 level before easing back into the high 1,260s. Spot silver was a quarter higher in Europe, before trading back just above unchanged in the US.
Spot gold closed the day near the top of the trading range Tuesday at $1,262.20, gaining $6.90. Spot silver added 15 cents to close at $17.59, near the middle of the day's trading range. December gold futures settled up by $6.30 at $1,262.90 an ounce. December silver jumped 0.9% to settle at $17.64 an ounce.
The air seems to have gone out of the dollar rally, as a stronger British pound pulled the greenback off a seven-month high. A surprise surge in retail inflation in the UK lifted the pound against all competitors Tuesday. The pound has been in free-fall since the June 23 Brexit vote, causing the prices of imported food and energy costs to jump. US consumer inflation jumped by the most in five months in September, led by a hefty 5.8% gain in gasoline prices and higher rent costs.
China seems to be finally starting the pivot toward a consumer-driven economy and away from one dominated by exports. This is one of the pillars of Beijing's plan to resuscitate growth after the drop in export demand. Third quarter GDP in China rose by 6.7% on a yearly basis, driven by retail sales. Economists say this gives the government a greater ability to begin reining in an overly-leveraged economy and housing bubble.
Treasuries are weaker again today, as bullish inflation data increases the chance of a December rate hike by the Federal Reserve. Readings of Fed funds futures rates by CME predict a 65% chance of a Fed rate hike in December. Another factor hurting Treasuries lately is China's drawing down of its level of US debt. Beijing has been pouring billions of dollars into international forex markets in an effort to support the yuan. By selling Treasuries instead of buying them, the Chinese have depressed the market.
If Saudi Arabia can actually forge an international agreement to curb growth in global oil production, the resulting increase in oil prices is likely to suddenly provide the inflation that central banks have been looking for. Hopes and dreams of this occurring have combined with a flat dollar to lift oil prices higher. West Texas intermediate oil futures are trading above $51 a barrel this morning, a day before the November contracts expire. November Brent futures are building on yesterday's gains to trade comfortably above the $52 mark.
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