A rocky trading session led to a mixed day on Wall Street as strong commodity prices balanced out ongoing worries in Europe as the continent’s sovereign debt crisis continued to weigh on the markets. The Dow and the S&P 500 both sank marginally while the Nasdaq managed to squeak by with a gain of 0.1%. Meanwhile, traders bought up the U.S. dollar, helping to push the dollar index up to 79.6 and simultaneously causing Treasury bond yields to tumble with the Two-Year note falling by 0.05% to 0.43%. In another flight to safe havens, precious metals once again saw their value soar today as gold pushed through to a new record to $1,426/oz. while silver topped the $30/oz. mark to hit a 30-year high.
This surge in precious metal demand was largely the result of comments by Ben Bernanke over the weekend in which the Federal Reserve chairman suggested that he was open to extending the latest QE program beyond its current $600 billion level. “It’s unnerving that he feels we have a need to print more money and pump more money into the system,” said Matt Zeman, a trader at LaSalle Futures Group in Chicago. “People continue to get away from paper money.” Meanwhile, tensions in Europe likely also helped to fuel the rise in gold as EU officials met in Brussels in order to come up with new ways to stabilize the region and avoid more bailouts. Ironically, the meeting came as Moody’s downgraded Hungary’s public debt rating, saying that the fiscal policies would not be sufficient in the long haul, according to marketwatch.com. This meeting and debt downgrade helped to put further pressure on Europe and send demand for traditional safe havens such as U.S. Treasurys and gold, sharply higher on the day.
One of the biggest ETF gainers on the day was the United States Natural Gas Fund (UNG) which surged by 4.1% to start off the week. Prices of the popular heating fuel were boosted by below-average temperatures across much of the country, even in traditionally more temperate states such as South Carolina and Tennessee. In fact, the demand level is likely to be so great that analysts with Jefferies predicted that the cold weather will help to eat up close to 100 bcf from storage, finally cutting into the nation’s supply glut of the fuel. Thanks to this recent runup in demand, shares of UNG have seen an uptick in value with UNG gaining close to 9.2% in the past month alone [see fundamentals of UNG here].
One of the biggest losers in the ETFdb 60 was the iShares FTSE/Xinhua China 25 Index Fund (FXI) which sank by 1.3% on the day. Today’s losses came thanks to ongoing fears that the nation will attempt to slow its economy down in order to cool off the red-hot growth level and keep inflation in check. Although overall CPI was at a reasonable 4.4%, food prices were up 10.1% year-over-year suggesting that in order keep social disorder to a minimum the Chinese will have to raise rates in order to prevent unrest among the general population. This speculation has helped to limit demand for Chinese equities over the past few trading sessions; FXI is now down 8.3% over the last four weeks alone [see holdings of FXI here].
Disclosure: No positions at time of writing.