Gold drops 2% after IMF asset price warning

GURU WISDOM

“Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard.” – Warren Buffett
 

MARKETS

Equity indices pulled back on Tuesday after a strong start to the week on Monday. Stocks in Asia were mostly flat after the release of China trade stats but in Europe the benchmarks were all in the red- but by less than 1%. Wall Street too finished lower as investors awaited the release of the new iPhone and any implications for the next move in tech stocks.

The US dollar gained as a haven- most notably against the British pound after UK jobless claims spiked in the 3-months through August- and the Australian dollar which is considered a proxy for China. The dollar gains extend from Monday when the PBOC lifted barriers to shorting the yuan. The euro dropped as ZEW reported a much bigger drop in German investor confidence than expected. 

Gold saw a big 2% drop, taking the yellow metal back below $1900 per oz. Silver too, dropped back below $24 per oz to unwind most of the gains made since Friday. Bucking the trend, the price of oil gained after a two day slide.
 

What’s happening?

The stock market drop on Tuesday looks more like a correction within a short-term uptrend in prices; however it had some specific drivers. The IMF raised growth forecasts but peppered the rosier outlook for the economy with a warning about asset prices (i.e. the stock market). The great hope in markets is that government stimulus will last long enough until there is a vaccine but news of a pause in its COVID-19 vaccine trails from Johnson & Johnson today dented those hopes. 
 

Q3 Earnings

JP Morgan Chase and Citibank- the first and third largest US banks by market cap both saw profits double in Q2 versus Q2. Still, shareholders were not convinced and the stocks pulled back after the reports. Today Bank of America, Goldman Sachs and Wells Fargo- the other three in the top 5 US banks report results. Banks are considered part of a ‘cyclical’ group of stocks that have underperformed ‘growth’ stocks namely big tech this year because of people’s concern about the damage the pandemic has done to the economy and the business cycle.