The Gold Market pulled back to break-even by the New York opening on Monday, erasing an early spike as European stock markets dropped into negative territory and the US Dollar bounced on the currency markets.
Gold Prices had jumped overnight to hit new two-week highs vs. the US Dollar as well as new all-time record highs against both the British Pound and Australian Dollar.
London's FTSE100 stock-market index, in contrast, is now trading 7% below its recent high of late October. Australia's All-Ordinaries index has lost nearly 6%.
"Gold is staring down at a big green light to take it to all-time highs," reckons Matt Zeman at LaSalle Futures in Chicago, referring to the 1980 high of $850 challenged at the start of this month.
"The expectation that the Dollar is going to continue to weaken and crude will break $110 is going to drive demand for gold."
Crude oil prices slipped back in both New York and London today after Brent crude recorded a new all-time high above $96 per barrel on news of a fire on a North-Sea oil rig. US sweet and light has earlier risen on a colder-than-usual forecast from the National Weather Center, but speculation is mounting that the Opec oil cartel will raise output quotas when it meets in Vienna next week.
"We believe the markets have yet to discount the outcome of the OPEC meeting, where there will be immense – and we believe ultimately successful pressure – on the cartel to raise quotas," said Edward Meir of MF Global to Bloomberg today.
On the data front this week, traders will be watching for US Consumer Confidence numbers tomorrow (Tues), followed by Existing Home Sales for Oct., due for release on Wednesday.
Provisional estimates of the United States' economic growth will be released at 08:30 EST on Thurs, with New Home Sales for last month – forecast to show a drop of almost 3% – following at 10am.
"I think we have some version of stagflation," warns Paul McCulley, second-in-command at Pimco, the world's biggest bond fund. "We're importing a degree of inflation with the weaker Dollar and oil prices, which the Fed can't do anything about. The economy is weaker."
But with stagflation threatening to squeeze bond-holders between falling yields and a rising cost of living, the Federal Reserve is still expected to cut US interest rates when it meets on Dec. 11th.
The betting on US interest-rate futures now put the odds of a cut at 94%. Treasury bonds have been bid up so high in anticipation, they're on track to record their best month since 2002.
US government debt sold off early Monday, however, pushing the yield on two-year Treasuries four points higher to 3.11%. Ten-year bond yields crept one point higher to 4.01%.
"It's almost like a relief sell off," said one fixed-income strategist in New York. "The [bond] markets have to breathe. People are going to be buying again."
If people do start buying bonds again – despite US inflation now running at 3.54%, way above the current yield paid to two-year bond buyers – history says Gold Prices may well surge as a result.