Gold hits record high, bonds rally as rate cut beats

Financial markets witnessed a surge in gold prices and a rally in bond markets on Wednesday, fuelled by expectations of falling interest rates globally.

This sentiment contrasted with a slight slip in Taiwanese stocks after US presidential candidate Donald Trump’s comments regarding the island’s defence.

The US S&P 500 index continued its record-breaking streak, closing at new highs overnight.

In Asia, futures remained stable, while the broader MSCI index of Asia-Pacific shares outside Japan saw flat movement. Japan’s Nikkei index managed a modest gain of 0.1 per cent.

The Taiwanese stock market declined as chipmaker TSMC dropped by two per cent, losing nearly $16 billion in market value.

This drop followed Trump’s comments in an interview with Bloomberg Businessweek, where he raised doubts about the US commitment to defending Taiwan without payment.

Chinese stocks remained subdued for a second consecutive day.

The Taiwan dollar weakened slightly, reaching a two-week low. China’s yuan, however, found stability at 7.2676 per dollar.

Analysts believe a potential Trump victory could lead to a stronger US dollar due to anticipated tariff hikes and increased budget deficits.

New Zealand’s stock market climbed to its highest level since March 2022, buoyed by data suggesting a slowdown in inflation. However, the domestic inflation outlook kept the rates market on edge, pushing the currency upwards.

The US Treasury market extended its gains, with the yield on the 10-year note settling at a four-month low of 4.175 per cent overnight.

This decline followed comments by Federal Reserve Chair Jerome Powell, who indicated recent inflation data provided somewhat more confidence in price control efforts.

Markets are now fully pricing in a US rate cut for September, followed by two more by the end of January 2025. Bond markets in Australia, Japan, and South Korea rallied.

Lower yields triggered a significant rise in gold prices overnight, propelling the metal above chart resistance at $2,450 per ounce despite a generally firm dollar. Gold prices reached a record high of $2,478 in Asian trade on Wednesday.

Oil prices experienced a slight decline, weighed down by indications of weakening demand from China. Brent crude futures fell 13 cents to $83.60 a barrel, while US crude followed suit, dropped 13 cents to $80.63 a barrel.

Attribution: Reuters