Morning Market Update May 9

What Chinese economic data giveth, Chinese economic data taketh away. After commodities, including precious metals, got a boost yesterday from better than expected Chinese trade surplus and import/export data, they are down today on news of a drop in the Chinese producer price index and an increase in inflation at the retail level. These numbers bring forth the possibility of the Chinese central bank tightening the money supply.

This led to a slow leak in gold prices overnight, with a dip right before the opening bell in New York. This dip was triggered by lower than expected first-time jobless claims for last week, which came in at 323,000 – the lowest level since January 2008.

Back in Asia, the Bank of Korea cut interest rates in a surprise move last night, to protect South Korean exports from a weakening Japanese yen. China, already miffed at Japan’s currency devaluation, pledged to change central bank policy to make the renminbi more responsive to market forces.

U.S. stock prices are set to open lower on profit taking, after the S&P 500 has broken all-time records for five days in a row. The dollar is gaining today, as the euro weakens on expectations of ECB rate cuts. Oil is lower today, partly on the Chinese economic news. These are bearish influences on the price of gold.

Analysts are looking to India in an effort to gauge near-term physical support for gold. Next week is Akshaya Tritiya, the Indian Festival of Gold, and one of the most important days in the Hindu calendar. While some traders expect a surge in gold purchases, others ponder whether the usual May purchases have already been made. During the paper panic of April 12-15, Indians mobbed gold retailers to buy up bargain-priced gold for the wedding season. Some buyers stated that they were buying gifts for the December wedding season ahead of time, due to the $200 an ounce drop in prices. Gold imports into India were reported to exceed 100 tons in April, and some expect that total to be matched in May.

by David Peterson

Leave a Reply