【Market Evening】 Gold and Dollar hold firm, Oil rises as storm approaches
Buffett indicator hits 205%, signaling overpriced stocks may crash; Gold steady as investors eye taper clues from Fed symposium; Dollar awaits Powell's Jackson Hole speech; Oil climbs as storm approaches Gulf of Mexico production hub.

Gold steady as investors eye taper clues from Fed symposium
Spot gold prices were steady on Friday, as investors awaited Fed chief Jerome Powell’s speech later in the day at the Jackson Hole symposium after some U.S. central bank officials called for paring bond purchases.
Gold will likely “remain range-bound over the next 24 hours or so, and hover around $1,775 to $1,810 area until we hear from…Powell,” said Fawad Razaqzada, market analyst at ThinkMarkets.
“What happens thereafter will be dependent on the direction of the U.S. dollar and bond yields,” he said in a market update. “If Powell appears to be dovish then gold should be able to rise further in the near-term.”
Spot gold rose 0.22% to $1796.05 per ounce and spot silver rose 0.51% to $23.67 per ounce by 17:30(GMT+8).
On Thursday, Federal Reserve’s hawkish policymakers urged the central bank to begin paring bond purchases they feel have become ineffective, if not downright harmful.
St. Louis Fed president James Bullard, along with Kansas City Fed president Esther George and Dallas Fed president Robert Kaplan, also downplayed the impact of the delta variant in separate interviews, a day before Chair Jerome Powell’s remarks at the annual Jackson Hole Economic Policy Symposium.
China’s net gold imports via Hong Kong fell nearly 29% in July after a sharp rise in June, Hong Kong Census and Statistics Department data showed on Thursday.
Caution also set in the market following Islamic State’s suicide bomb attack on Thursday at Kabul airport, that killed scores of civilians and at least 13 U.S. troops.
Dollar holds firm
The dollar held firm on Friday after the U.S. Federal Reserve’s hawkish wing called for tapering bond purchases as investors looked to a highly-anticipated speech by Fed Chair Jerome Powell later in the day.
The US dollar index was $93.06 by 17:30(GMT+8).
The common currency was not helped by a survey showing German consumer sentiment darkened heading into September due to accelerating inflation and rising Covid-19 cases.
Sterling also dropped to $1.3703. Against the yen, the dollar stood little changed at 110.06 yen.
“While Chair Powell is likely to ... lay the groundwork for an eventual taper, we expect him to err on the side of caution and patience this week given that the macroeconomic landscape has deteriorated since the July policy gathering,” said Candice Bangsund, portfolio manager at Fiera Capital in Montreal, Canada.
Rough consensus in the market is that Powell will likely announce tapering in the fourth quarter, giving a clear signal at one meeting before the actual announcement.
“For Powell, there is no merit in specifying the exact timing for tapering at today’s speech. If he doesn’t drop a clear hint, that will be mildly positive for stocks,” said Kyosuke Suzuki, president of financial algotech company at Ryobi Systems.
Risk-sensitive currencies are likely to gain while the yen is likely to weaken in that case, he added.
Oil climbs as storm approaches
Crude oil prices rose on Friday, on track to post big gains for the week, on worries about near term supply disruptions as energy companies began shutting in production in the Gulf of Mexico ahead of a potential hurricane forecast to hit on the weekend.
Brent crude oil price was up 0.70%, at $70.96 a barrel and WTI crude oil price rose 0.90%, at $68.22 a barrel by 17:30(GMT+8).
Brent is on track for a rise of more than 9% this week, its biggest weekly jump since June 2020 mostly on relief that China has contained an outbreak of the Delta variant.
Companies started airlifting workers from Gulf of Mexico oil production platforms on Thursday and BHP and BP said they have begun to stop production at offshore platforms as a storm was brewing in the Caribbean Sea, forecast to barrel through the Gulf on the weekend.
Gulf of Mexico offshore wells account for 17% of U.S. crude oil production and 5% of dry natural gas production. Over 45% of total U.S. refining capacity lies along the Gulf Coast.
The prospect of U.S. Gulf supply outages helped turn the market around from losses on Thursday, which had been partly spurred by output returning at a Mexican oil platform following a fatal fire.
“The market may have more immediate concerns, with a storm building in the Caribbean. It’s expected to become a powerful hurricane and potentially wreak havoc in the Gulf of Mexico and Texas early next week,” ANZ Research said in a note.
Analysts also expect moves in the dollar to be a big factor on Friday, after U.S. Federal Reserve Chairman Jerome Powell gives a highly anticipated speech. The markets expect he may give some guidance on plans for tapering of bond purchases in the fourth quarter.
“If we do see an earlier tapering, our expectation is the U.S. dollar will lift, and that will put pressure on oil and other commodities,” said Commonwealth Bank commodities analyst Vivek Dhar.
Asian stocks mixed ahead of possible Fed guidance
Asian stock markets were mixed Friday as investors awaited more guidance on the U.S. Federal Reserve’s easing plans.
Nikkei 225 fell 0.36% to 27,641.14.
South Korea KOSPI rose 0.17 to 3,133.90.
S&P/ASX 200 fell 0.039% to close at 7,488.30.
Taiwan capitalization weighted stock rose 0.84% to 17,209.93.
Hang Seng Index fell 0.031% to 25,407.89.
Warren Buffett's favorite market indicator has climbed to 205%, signaling stocks are vastly overpriced and a crash may be coming.
The "Buffett indicator" takes the combined market capitalization of all publicly traded US stocks, and divides it by the latest quarterly figure for gross domestic product. It serves as a rough gauge of the stock market's valuation relative to the size of the economy.
When the indicator surged to a record high during the dot-com bubble, it should have been a "very strong warning signal" of an impending crash, the famed investor and Berkshire Hathaway CEO added. The yardstick also soared in the lead-up to the global financial crisis, making it a useful tool for anticipating downturns. Both times, the indicator remained under 150%.
However, the gauge is far from perfect. For example, it compares the previous quarter's GDP to the stock market's value today. GDP also excludes overseas income, whereas US companies' market caps reflect the value of both their domestic and international operations.
Moreover, the pandemic has disrupted economic activity and depressed GDP since last spring, while also spurring the federal government to support companies, propping up markets in the process. As a result, the Buffett indicator's readings may be artificially inflated, and could fall as the economy recovers and corporate aid is withdrawn.
Buffett's indicator isn't alone in predicting a painful sell-off. Michael Burry, the investor of "The Big Short" fame, warned earlier this year that the stock market is "dancing on a knife's edge" and the "mother of all crashes" is coming. Jeremy Grantham, the market historian and GMO cofounder, has also sounded the alarm on a "fully-fledged epic bubble" that he expects to burst spectacularly.
Focus Tonight
20:30 (GMT+8): United States Core PCE Price Index YoY (JUL), Forecast: 3.6%, Previous: 3.5%;
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