Stocks worldwide tick up with gold prices up to highest level since 1973
ALBAWABA – Gold prices hit a new 50-year high on Sunday as stocks worldwide mostly rose despite the shock in the United States (US) mortgage-back securities (MBS) market, amid the biggest market rally since 2008.
An otherwise quiet segment of the debt market, the MBS sector is usually used by the finance industry to transfer mortgage default risk and trade securities and mortgages. It is historically considered a relatively low-turbulence market.
However, the US $7.5 billion MBS market was shocked over the weekend when insurer Arch Capital Group Ltd. called $1.7 billion of their securities at par, according to Bloomberg. Especially since they had been trading at a premium.
Gold price and stocks worldwide rose amid turbulence in the MBS market after Arch paid their securities at par all of a sudden - Shutterstock
Investors and traders were suddenly reminded that credit risk transfer bonds can be pulled away from them at face value, potentially leaving them at a loss.
The implications of Arch’s move could be felt widely, as Bloomberg reported more financial institutions including banks are looking to use bonds to shift credit risk to other investors. It helps them cut their capital requirements in the process.
Stocks worldwide edging higher as gold prices reach new 50-year high
On the other hand, speculation that the Federal Reserve is poised to ease monetary policy soon enough spurred even cautious investors to erupt in a spasm of cross-asset buying.
Stocks worldwide jump, bond yields fall, and investors start trading in meme fliers, crypto and profitless tech stocks, as risk appetite built in the wake of the rally.
Safe havens were no exception to the market-wide rise, with gold prices set to make its highest one-day rise in a while, having already risen more than 2.78 percent in 30 days.
Gold prices rise as stocks worldwide edge high on recent market rally amid hopes of lower interest rates soon, putting pressure on other non-commodity safe-havens - Shutterstock
Gold prices reached $2,072.13 on Sunday, up $32.01 overnight, marking a 1.57 percent rise since midnight New York time, and a 408.31 percent surge over the last 20 years.
Overall, this is the highest gold prices have been since the free-floating fiat currencies regime dominated in 1973, when gold was priced at just a little over $63 an ounce, according to GoldPrice.org.
Year-ender rally bolsters stocks worldwide, gold prices
Likewise, November’s cross-asset surge has driven the biggest exchange-traded funds (ETFs) rally since 2008, according to Bloomberg.
The S&P 500 was last reported up 0.59 percent by Reuters, at 4,594.63. The Euro STOXX 50 was up 0.82 percent, at 4,418.51, and London’s FTSE 100 at 7,529.35, up 1.01 percent, while the Nikkei 225 was down 0.17 percent, at 33,431.51.
Likewise, the Dow Jones was up 0.82 percent, the NASDAQ 0.55 percent and the NYSE Composite was 174.91 points higher, up 1.09 percent, the Canada-based news agency reported.
Stocks worldwide are slowing after a global rally which has also driven gold prices up ahead of the holidays - Shutterstock
Despite the rally in stocks worldwide, demand for safe havens has skyrocketed as well, driving gold prices to a new all-time high.
Nonetheless, US 10-year treasury yields remained unchanged, at 4.209 percent, after having fallen from 4.5 percent earlier in November.
Investors are cashing in on the rally in November, ahead of the upcoming holidays in the US, UK and Europe, as speculations build up hopes the Federal Reserve will cut rates as soon as early next year.
A divided but strong market dominates as lower interest rates discourage investments in US treasuries and safe-haven bonds but encourage investments in stocks and safe-haven commodities, such as gold. Cutting rates will further boost gold prices, as the US dollar weakens on lower interest rates.
