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While you were sleeping: Gold rises, equities pause

Tuesday 9th November 2010

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Gold rose through the US$1400 an ounce mark for the first time as equities were flat to lower as investors hit pause after five weeks of gains.

Many investors were still assessing the whirlwind of news a week ago in which the US Federal Reserve pledged to buy more US government bonds and the US jobs market threw out its best set of data in months, signalling that America’s economic recovery was intact.

In mid afternoon trading, the Dow Jones industrial average fell 0.38%, the Standard & Poor's 500 Index declined 0.33% and the Nasdaq Composite Index was unchanged at 2,578.94.

Leading declines was the S&P financial index, giving up 0.8% after gaining 6.9% last week. Investors were concerned that the Federal Reserve’s commitment to keeping borrowing costs near record lows would cut into bank profits.

"Negative interest rates are not healthy for financial stocks, and banks still have a lot of bad debt on their books," Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville, told Reuters.

Even so, analysts expect today’s pullback to be short-lived.

"Every time you make new highs it doesn't necessarily mean you're going higher," John Schlitz, chief US market technician at Instinet in New York, told Reuters.

"But you keep the uptrend alive, and that theoretically keeps demand there when you get a pressure-relieving pullback."

Shares of AOL rose after a Wall Street Journal report that the company is exploring strategic options, including a tie-up with Yahoo and has hired financial advisers.

In Europe, the Stoxx 600 barely budged, closing at 271.91. National benchmark indexes declined in 11 of the 18 western European markets.

The Dollar Index, which measures its value against a basket of currencies, gained 0.49% to 76.93.

The euro suffered from renewed concern about Ireland’s debt problems.

The euro fell 0.9% to US$1.3905 and dropped 1% to 112.88 yen.

The benchmark 30-year US Treasury bond rose, driving down the yield one basis point to 4.11% in New York. The yield on the benchmark 10-year note was steady at 2.53%.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.58% to 315.39. It was bolstered by gains in gold which climbed to a record.

The US December gold contract rose US$2.50 to US$1,400.20 an ounce. Spot gold advanced 0.4% to US$1,400.70 an ounce.

The precious metal’s move came after the head of the World Bank proposed a return to a modified global gold standard.

Writing in the Financial Times, Robert Zoellick, the bank’s president since 2007, says a successor is needed to what he calls the “Bretton Woods II” system of floating currencies that has held since the Bretton Woods fixed exchange rate regime broke down in 1971.

Zoellick is calling for a system that “is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account”.

He adds: “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”

Oil fell. Last week it posted a 6.6% climb, the biggest percentage gain since the week to February 19.

US crude for December delivery dropped 30 cents to US$86.55 a barrel at 1654 GMT.

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