Global indices rally as gold price hits new record
A weaker dollar and inflation concerns pushed gold to a new high on Tuesday, fuelling miners around the world
The FTSE 100 index gained 113.7 points or 2.3% to settle notably higher at 5,138.0. The FTSE 250 index put in a similarly strong performance, rising 218.7 points or 2.4% to 9,201.2.
The Reserve Bank of Australia’s overnight decision to increase its cash rate target to 3.25% represented the first G20 nation to feel confident enough to reverse previous rate cuts and highlighted the recent strengthening in economic sentiment.
In other economic news, UK house prices continued their climb in September, rising a higher-than-forecast 1.6% after August’s 0.8% increase, according to the latest Halifax report.
UK manufacturing output, meanwhile, fell unexpectedly in August—down 1.9% month-on-month to its lowest level since the early 1990s, with the Office for National Statistics’ index of manufacturing coming in at 87.8. UK equity markets were unfazed, however, in light of a new record high gold price.
Gold futures hit $1,038 an ounce on Nymex, beating the previous record of $1,033.9 set in early 2008 as investors snapped up the yellow metal, which is traditionally seen as a hedge against inflation.
The price boost pushed Fresnillo, Vedanta Resources and Kazakhmys into the top three FTSE 100 spots, each surging 9.9%, 9.1% and 9.1%, respectively. In fact, nine of the top ten blue-chip risers were resource stocks by close of play Tuesday as a weaker US dollar fuelled both metal and oil prices.
Among firming oil & gas producers, Tullow Oil and Cairn Energy were to strongest climbers, 8.4% and 5.1% higher apiece.
Positive read-across from the UK house price data helped attract investors to the real estate sector, with Segro jumping 6.0% and Liberty International up 5.0%.
And a number of banking stocks were also in demand following a BofA Merrill Lynch Global Research report that upgraded European banks to Overweight. Standard Chartered, Royal Bank of Scotland and Barclays firmed 2.2%-4.0%.
Accompanying the handful of defensive stocks that slipped into the red was insurer Aviva and retail giant Tesco, both of which slipped 0.2%. The former today announced it will merge its life and general insurance units, while the latter this morning reported first-half results that were broadly in line with market estimates. Read Morningstar’s take on the numbers and our long-term assessment of Tesco here.
On the second tier, Northern Foods stood out among the mid-cap casualties, dropping 6.0% after its interim update received a frosty reception amid implications like-for-like sales have weakened dramatically, particularly in the Frozen division. Read more on this here.
