U.S. Stock Indices Hold on to Gains in Tight Range Bound Trading

U.S. equity markets held on to their gains following a stronger opening fueled by increased demand for higher yielding assets.  U.S. investors held the markets inside of the range established earlier in the day as once again investors did not feel the need to chase the markets higher.  The strong rise in hard assets also boosted the price of industrial metal stocks. The overall strength in the market, however, was attributed to the weakness in the Dollar and the strong appetite for risk.

Treasuries finished lower after the equity markets were able to hang on to their gains.  Some traders bought bonds and notes in anticipation of a possible break because of the gap higher opening in the equity markets.  Foreign investors have been looking elsewhere for better returns on bonds.  This is helping to contribute to the weakness in the Treasuries.  This is also a sign that yields will have to rise to attract more buying interest.

The U.S. Dollar finished weaker across the board.  The G-20’s pledge to continue to provide stimulus was most likely the biggest factor contributing to the rally in the foreign currencies.  The thought of pumping more money into the global economy triggered renewed demand for equities and commodities with metals leading the way.  Traders are also reacting to renewed questions about the role of the Dollar as the world’s number one reserve currency.

Precious metals surged earlier in the trading session but backed off as the day wore on with December Gold closing lower for the day.  December Gold cracked the $1000 barrier early in the trading session, but investors refused to chase it higher. Increased stimulus spending by the G-20 helped to contribute to the rally along with the weaker Dollar.  Talk that the Dollar may lose its role as the world’s reserve currency also helped contribute to the rally.

The weakness in the Dollar led the energy complex higher but gains were limited when the December Crude Oil reached a major retracement zone.  Trading could be limited at current levels as speculative buying may subside if supply and demand factors don’t confirm the strength.