Midday Market Update Sept 3: Return of the Market

Everyone should be back from summer vacation in the U.S. and Europe, so we should soon know whether the recent rally in precious metals was simply from low volumes, or if it has fundamental support.

Gold took a hit overnight on the London open, but recovered higher. The yellow metal is up sharply in New York as stops were hit at the $1.400 mark. Silver again seems to be the more resilient of the metals, avoiding the sell-off in Europe before catching the tailwind in New York to rise over 3.5%. Both gold and silver are showing notable strength by advancing against a notably stronger dollar and rising Treasury yields.

The missile test by Israel in the eastern Mediterranean has ramped up war jitters, and is counteracting positive economic news from the U.S. The ISM index of factory activity edged up to 55.7 from 55.4, against an expectation of a fall to 54. In addition, construction spending rose to a four-year high. This is fueling speculation that the Federal Reserve will begin “tapering” its quantitative easing program of $85 billion of bond purchases a month. As a result, the yield on 10-year Treasury notes has ramped back up to 2.90%.

U.S. stocks had opened sharply higher, but plunged as House Speaker John Boehner declared that President Obama should be supported in his plan to attack Syria. Boehner stated that “only the US can stop Assad” and that something had to be done. These statements are helping gold continue its climb today.

 

Platinum is being bid up as a major South African mineworkers union begins a strike against the gold mining sector over pay increases, with the troubles expected to soon spill over to the platinum sector. While South Africa only produces about 6% of global gold output, it is by far the largest platinum producer in the world.

 

by David Peterson

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