However, counteracting this stronger dollar is a decline in safe-haven assets like gold and further strength in the greenback could go unobstructed, particularly while the trade spats between the U.S. and China continue.
“The main issue is that this concern over trade tensions between the U.S. and China is translating into a stronger dollar, and that is weighing on gold,” said Jonathan Butler, commodities analyst at Mitsubishi in London. “I think we’ll continue to see gold under pressure. As long as the dollar remains relatively well supported, yields continue to rise and the U.S. economic growth story remains in place, it’s hard to see where a strong rally would come from in gold.”
Higher Returns on CDs
With current investor sentiment in a risk-on mode, capital allocations to certificates of deposit (CDs) have fallen to the wayside, but CD rates have been on the move, climbing to as high as 3% at certain online banks versus their brick and mortar counterparts. With the floodgates opening to positive news regarding the economy, it sets the stage for the Fed to announce more interest rate hikes in September in addition to the pair of rate hikes already seen this year.
CDs have been beneficiaries of these rate hikes with banking institutions like Citizens Access and PurePoint Financial offering 3% rates on three-year terms. Unlike the traditional brick-and-mortar banks, online banks do not have the operational costs associated with branches like Bank of America or Wells Fargo.
Traditional banks build their business models around customer retention and convenience rather than trying to attract new prospects based on higher interest rates. Online banks, however, can bypass the operating costs necessary for traditional banks and offer higher rates on their products like CDs.
For more trends in fixed income, visit the Rising Rates Channel.