Gold Markets Rally on Dollar-Oil Trading News

Posted on | October 6, 2009 |

Stock markets were absolutely buzzing today, with London’s FTSE 100 jumping more than 2% this afternoon and Wall Street up 1% during the first half hour of the US trading session.

Stocks were buoyed by a confluence of rising metal prices, deal news, bullish broker reports and optimism over the forthcoming third-quarter earnings season.

October Gold futures broke a new record high, rising 2.7% to $1045 an ounce this afternoon after the US Dollar’s role in global oil trading came under scrutiny following a report in the UK’s Independent newspaper.

The newspaper revealed that Gulf Arab states, along with China, Russia, Japan and France, are planning to put an end to Dollar-based trading in the oil market. The report suggests that the new basket of currencies may comprise of the Yen, the Yuan, the Euro and Gold.

Gold remained supported even after Saudi and Russian authorities denied the media reports, suggesting the market is still very bullish on the commodity. Analysts at Heritage West Futures told Bloomberg Television they believe the metal is likely to rise above $1,200 an ounce by year-end.

December silver futures jumped 4.5% to $17.29 an ounce, October platinum climbed 1.34% to $1312 an ounce while copper for three-month delivery rose much as 2.4% to $6,060 a ton on the London Metal Exchange.

US mining companies were, not surprisingly, having a strong run this afternoon, with the likes of Freeport-McMoRan Copper & Gold climbing 3.9% to $69.92, Barrick Gold 5.5% higher at $38.95 and Alcoa, which releases its third-quarter earnings tomorrow, up 3.65% to $13.91 a share.

‘We are all very focused on the earnings season,’ Mark Bronzo of Security Global Investors. ‘The markets are doing better as people anticipate earnings will be better than what’s expected. Basic-materials and industrials and select technology names are probably the places to be in the short-term.’ [1]

By 3:30pm (London time) the Dow Jones Industrial Average was 111.7 points (+1.16%) higher at 9711.45 while the broader S&P 500 was 13.67 points (+1.31%) above its previous close at 1054.13. The Nasdaq was also in positive territory as well, up 26.43 points (+1.6%) to 1702.07.

Semiconductors shares were in demand this afternoon, with the likes of Intel and Advanced Micro Devices advancing 2% to $19.49 and 2.9% to $5.7 respectively. Following an upbeat report on the sector with research compiled by Gartner revealing that global semiconductor revenue is likely to grow by 10% next year following two years of falls. The research firm believes that demand for new computers and feature-jammed smart phones will help boost chip revenues. [2]

Technology company Corning rose 6% to $15.70 after UBA upgraded the company from ‘neutral’ to ‘buy’, citing ‘more robust’ sales in China. [3]

Banks were also in vogue, with Citigroup up 1.3% to $4.73 and Bank of America 1.5% higher at $17.21. Goldman Sachs gained 1.1% to $188.57 after the Wall Street Journal reported that the company is currently amending the terms of a $3 billion loan to CIT Group. In the meantime, CIT Group gained 5.4% to $1.18. Meanwhile, embattled insurer American International Group surged nearly 7.5% to $45.92 this afternoon on speculation that it is near to an agreement to sell its Taiwan life insurance unit to Primus Financial Holdings.

[1] Source: Bloomberg News (6 October 2009)
[2] Source: Reuters News (6 October 2009)
[3] Source: Bloomberg News (6 October 2009)

By Anthony Grech, Research Analyst, IG Index.

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