Gold prices reached new highs as the dollar jumped 0.5 percent. A weaker dollar has been a boost for stock prices, especially for companies that rely on exports and overseas operations for increasing revenues.
Dirk van Dijk, the senior equity strategist at Zacks.com, said that Federal Reserve’s recently-announced economic stimulus package has prompted investors to put money into gold and other commodities. The central bank plans to buy $600 billion in Treasury bonds in order to spur spending, a tactic known as quantitative easing, in order to push interest rates lower and encourage borrowing. The dollar has been falling against other currencies in anticipation of the program.
“The market is still being driven by the Fed’s actions and it will be for a while,” Dijk said.
The Dow Jones industrial average fell 60.47, or 0.5 percent, to 11,346.37. The index lost 37.24 on Monday following six days of gains.
The broader Standard & Poor’s 500 index fell 6.98, or 0.6 percent, to 1,216.27, while the technology-focused Nasdaq composite index fell 11.61, or 0.5 percent, to 2,568.44.
Telecommunications and energy companies were the only groups of the S&P 500 to gain. Financial companies, which fell 1.6 percent, were the worst performing industry group.
Gold rose further, a day after trading above $1,400 for the first time. Gold is at a record in dollar terms but is still well below its peak in the early 1980s after accounting for inflation.
The weakening dollar has been benefiting gold as investors seek other assets seen as safe places to park money. Some gold investors see the metal as a hedge against national currencies losing their value as a result of inflation. Gold was given another boost Monday when World Bank President Robert Zoellick wrote an op-ed piece in the Financial Times arguing that gold should have a place in the world’s monetary system. The precious metal rose to $1,406.80 an ounce, a 0.3 percent rise from late Monday.
Silver also rose, gaining 1.7 percent to trade at $27.91 an ounce. The metal’s large gains may be a result of traders buying silver becuase it had fallen below its typical price relationship with gold. Gold usually trades at 50 times the price of silver, said Rick de los Reyes, a metals and mining analyst at T. Rowe Price.
“Gold is someone’s first instinct when they are buying for all of the reasons they’re buying gold right now, and silver usually lags somewhat,” he said. Silver, which has a greater use for industries than gold, is rising alongside other industrial metals like platinum and copper.
In corporate news, Chevron Corp. shares fell 1.1 percent after announcing a deal to buy the natural-gas producer Atlas Energy for $4.3 billion, following other natural gas deals by rival energy gians Exxon Mobil Corp. and Royal Dutch Shell PLC.
Shares of Dean Foods Co. sank 16.3 percent after the country’s largest dairy company announced disappointing results. The company has slashed prices to compete with supermarkets selling milk under their own labels. Dean Foods shares have slumped 52 percent for the year, making it one of the worst performing stocks in the S&P 500 index.
Stocks rose in Europe following a batch of strong corporate earnings reports. British mobile phone company Vodaphone PLC reported a 3 percent gain in operating profits and raised its full-year forecast, while the French luxury goods maker Hermes SA said it expects to bring in more profits this year than earlier forecasts.
The Euro Stoxx 50, which tracks blue chip companies in Europe, rose 0.7 percent.
Investors are also focusing on a global summit coming up Thursday in South Korea. Finance ministers from China, Germany and Japan have criticized the Fed’s bond-buying program, which is likely to further weaken the dollar. That would make products from U.S. companies like Caterpillar Inc. and Boeing Co. cheaper on global markets at the expense of exports made in other countries.
The dollar gained 0.3 percent against a broad basket of currencies.