【Market Morning】Gold logs best week since May, Dow rises more than 170 points and Nasdaq rallies

Yesterday Market Review

Gold logs best week since May as inflation fears grow

Spot gold price finished with a gain on Friday, stretching their winning streak into a seventh consecutive session, with prices scoring the biggest weekly percentage gain since May.

“Inflation is a very real fear, and the price of gold is reflecting this,” said Adam Koos, president at Libertas Wealth Management Group.

The rising U.S. dollar is creating a near-term drag on gold, Koos told MarketWatch. However, “as more stimulus and liquidity comes out of the [Federal Reserve] and Washington, we could see this short-term uptrend quickly change course at any time, sending the dollar falling, which would create a catalyst for gold prices.”

Spot gold rose $4.60, or nearly 0.3%, to settle at $1,868.50 an ounce, spot silver climbed 0.2%, to settle at $25.346 an ounce. 

Prices for the yellow metal also found support after the University of Michigan’s reading on U.S. consumer sentiment Friday showed a fall to 66.8 this month from 71.7 in October, while expectations for 1-year inflation rose to 4.9%, it’s highest level since the summer of 2008, from 4.8% in October.

Futures for the yellow metal notched a weekly gain of nearly 2.9%, for the best weekly gain since the period ended May 7.

Dollar rebound continues as euro plunges

The dollar continued to rebound from prior-day losses on Friday as the euro plunged and currency and bond markets tried to sort through inflation reports and central bank comments amid end-of-month position adjustments.

The US dollar index was up 1% around noon (1600 GMT) in New York, more than reversing Thursday's loss of nearly 0.6%. The move put the dollar on track for its biggest one-day gain since at least June and near a one-year high reached 17 days ago.

The euro fell more than 1% in its biggest daily percentage loss since March 2020. On Thursday the euro booked its biggest daily gain in five months.

The British pound fell 0.8% to $1.3680 .

Volatility in the foreign exchange and the interest rate markets has increased during the week as they tried to digest central bank actions and economic reports. Next week could bring more of the same around policy meetings of the U.S. Federal Reserve, the Bank of England and the Reserve Bank of Australia.

"A source of volatility could be this discrepancy between what the markets are saying and what the central banks are saying," said Marc Chandler, chief market strategist at Bannockburn Global Forex.

Month-end adjustments of positions are another factor, Chandler said.

U.S. Treasury yields rose after the government's index of core personal consumption expenditures - the Fed's preferred inflation measure - climbed 0.2% in September, showing an increase of 3.6% over 12 months. read more

U.S. interest rate markets have been unusually volatile as traders prepare for the Federal Reserve to raise rates around mid-2022. read more

European data on Friday showed inflation in the 19 countries sharing the euro rose to 4.1% in October from 3.4% a month earlier, beating a consensus forecast of 3.7% and creating a policy dilemma for the European Central Bank. read more

Germany's 10-year bond yield rose on Friday as much as 8 basis points to its highest level since May 2019 and Southern European government bond yields surged.

ECB President Christine Lagarde's failure during a Thursday press conference to push back against market expectations of higher interest rates has brought out bears, with Danske Bank strategists expecting the euro to fall to $1.10 over the next 12 months.

"Investors are just not buying what the ECB is saying," said Marios Hadjikyriacos, a senior investment analyst at brokerage XM. Markets are betting that inflation will force the ECB to pull back on asset purchases sooner than planned.

Elsewhere, the dollar gained 0.4% against the Japanese yen to 114.065.

The Australian dollar slipped nearly 0.5% to $0.7509 after reaching the highest since early July at $0.75555 in the previous session.

Oil prices post third weekly drop after volatile week

Crude oil prices fell on Friday, wiping out gains from the previous session, on worries that the U.S. Federal Reserve will accelerate plans to boost interest rates to tame inflation.

Brent crude oil futures fell 70 cents, or 0.8%, to settle at $82.17 a barrel. U.S. West Texas Intermediate (WTI) crude fell 80 cents, or 1%, to settle at $80.79 a barrel.

Both benchmarks fell for a third consecutive week, hit by a strengthening dollar and speculation that President Joe Biden's administration might release oil from the U.S. Strategic Petroleum Reserve to cool prices. On a weekly basis, Brent fell 0.7%, while WTI declined 0.6%.

"This week has been a good reminder for global oil markets that prices are not only affected by the supply-demand trajectory, but also from monetary policy forecasts and by forms of government intervention," said Louise Dickson, senior oil markets analyst at Rystad Energy. "Higher interest rates would provide even further support to the dollar and even more downward pressure on oil prices."

U.S. Energy Secretary Jennifer Granholm said on Monday that Biden could act as soon as this week to address soaring gasoline prices. read more

"We believe that whatever the announcement is will only have a short-term impact on price, but because of the uncertainty the market is pulling back a little bit," said Phil Flynn, senior analyst at Price Futures Group.

U.S. energy firms this week added oil and natural gas rigs for a third week in a row. The oil and gas rig count, an early indicator of future output, rose six to 556 in the week to Nov. 12, its highest level since April 2020, energy services firm Baker Hughes Co (BKR.N) said on Friday. read more

Russia's Rosneft (ROSN.MM) the world's second-biggest oil company by output after Saudi Aramco, warned on Friday of a potential "super cycle" in global energy markets, raising the prospect of even higher prices as demand outstrips supply. read more

Still, though there are positive signs on the demand side, with air travel picking up rapidly, tighter monetary and fiscal policy and the looming Northern Hemisphere winter will act as a dampener.

The Organization of the Petroleum Exporting Countries (OPEC) on Thursday cut its world oil demand forecast for the fourth quarter by 330,000 barrels per day (bpd) from last month's forecast as high energy prices hampered economic recovery from the COVID-19 pandemic. read more

OPEC, Russia and allies, together known as OPEC+, agreed last week to stick to plans to add 400,000 bpd to the market each month.

"The oil market is sleepwalking into a supply surplus," said Stephen Brennock of oil broker PVM. "OPEC and its allies will at the very least need to put a pause on the easing of their supply curbs in the new year. Inaction will result in global oil stocks swelling once again."

Dow rises more than 170 points and Nasdaq rallies, but snap 5-week win streak

Stocks rallied Friday, but still posted their first losing week in six amid heightened inflation fears.

The Dow Jones Industrial Average rose 179.08 points, or 0.5%, to close at 36,100.31. The S&P 500 gained about 0.7% at 4,682.85. The Nasdaq Composite rallied 1% at 15,860.96.

The major averages closed the week lower after the hottest inflation report in 30 years. The Dow fell 0.6%, the S&P 500 dipped 0.3% and the Nasdaq Composite inched down about 0.7% on the week.

The October consumer price index released Wednesday showed inflation at its hottest pace in more than 30 years. The fresh inflation reading sent bond yields higher and hit growth pockets of the equity market.

Friday’s market action was a “rebound from what happened earlier in the week,” said Victoria Fernandez, chief market strategist of Crossmark Global Investments. “We’re starting to see maybe peak concern in the supply chain. We’ll get more information on that next week with retail earnings like Walmart and Target.”

Dow component Johnson & Johnson saw its shares rise 1.2% following a Wall Street Journal report that the company is splitting in two. Johnson & Johnson is reportedly breaking off its consumer health division into a separate publicly traded company.

Mega-cap technology names provided support to the broader market. Facebook-parent Meta rallied 4%. Apple, Microsoft and Amazon each added more than 1%.

Despite the week’s losses, the three major averages are within striking distance of their record highs. The S&P 500 is up more than 24% in 2021.