Gold jumps to highest level in seven months

London — Gold climbed to a seven-month high on Tuesday as markets opted for caution before three major macro events and a blizzard of big tech company earnings in the coming days, starting with Apple later.

Despite the upcoming action — a key Brexit vote in the UK, Wednesday’s US Federal Reserve decision and Thursday’s conclusion of the latest Sino-US trade talks — European and Asian stocks held up relatively well.

London’s FTSE rose 1% and Frankfurt and Paris both made some ground. Utilities and other safety plays benefited from a series of US profit alerts, including from digger maker Caterpillar, overnight.

News that the US had levelled charges against China’s telecom giant Huawei days before the next round of trade talks between Washington and Beijing knocked sentiment.

But it was offset by promises of more economic stimulus from China, which had berated Washington on Monday for blocking the appointment of judges for its World Trade Organisation appeal against US tariffs.

Amid the turmoil, gold broke through $1,300 an ounce to reach its highest since mid June.

“Investors are very cautious with many uncertainties on US-China trade talks and Brexit. Huawei is at the centre of dispute, creating very noisy background for the trade talks,” said Margaret Yang, a market analyst at CMC Markets.

“All these are making it more difficult for investors to judge the market’s direction. Money is fleeing into assets such as gold, seeking safety.” 

The US-Sino moves, as well as bets that the US Fed will sound more cautious on Wednesday, kept the dollar near a two-week low and heightened the safe-haven appeal of the yen and the Swiss franc.

Sterling held at $1.3166 and 86.88 pence to the euro before crucial votes later in the day aimed at breaking a deadlock in the UK parliament over Brexit .

The pound has rallied 6% from January 4 lows, but further gains may be limited unless MPs emerge with a big majority on the votes.

Most European government bond yields were little changed. Weaker economic data and unknowns such as the trade feuds and Brexit have all boosted expectations that interest rates will stay low.

New debt deals from Greece, Belgium and Austria were also in the pipeline. The slide in rates has also encouraged governments to launch new bond deals. Even Angola, which has just taken IMF aid, said it was eyeing a bond sale.

In Asia, shares were mixed, with losses for Australia and New Zealand, with their benchmark indices down 0.5% and 1.2% respectively. Japanese and Chinese stocks both recovered from early wobbles to finish in the green.

Warning bells

Markets will have more catalysts this week with more than 100 of the S&P 500 companies reporting results, including Amazon, Apple and Facebook.

Overnight on Wall Street, the Dow and S&P 500 each closed down 0.8% and the Nasdaq was off more than 1%.

The losses came after Caterpillar and Nvidia Corp joined a growing list of companies cautioning about the crippling effects of softening Chinese demand.

“Both companies are seen as industry bellwethers, and their disappointing results provide further evidence that this time China’s slowdown is for real,” said Rodrigo Catril, Sydney-based strategist at National Australia Bank.

Worryingly, earnings at China’s industrial firms also shrank in December, pointing to more troubles for the country’s vast manufacturing sector, which is already struggling with a decline in orders, job layoffs and factory closures.

Oil recovered after overnight losses. US crude was last up 35 US cents at $52.34 a barrel; Brent gained 37c to $60.30.

Washington imposed sanctions on Venezuelan state-owned oil company PDVSA on Monday, a step that is likely to curb its crude exports to the US and ratchet up the pressure on President Nicolas Maduro.

Reuters