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Spot Gold and Dollar Slip On Friday

August 11th, 2017 by

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Both the precious metals and the U.S. dollar were down in early trading on Friday morning. The latter continued to be dragged down by a stronger euro and Japanese yen, while the former were shedding some of the impressive safe-haven demand that accumulated this week.

Spot gold was down more than $4 per ounce when markets opened in New York before returning to essentially unchanged at $1,285/oz. Silver initially fell almost 20¢ (-1%), as usual playing its role as the more volatile of the precious metals. (Consider that silver prices rallied 80¢ over the past three trading days alone!) The argent metal recovered later in the morning and traded 0.6% lower to $17.00/oz. Platinum gained $8 while palladium was flat, widening the spread between the two metals to exactly $100 per ounce.

Year-to-date, gold is now outpacing the S&P 500, which gives the broadest picture of the U.S. stock market of any major index. The S&P has gained a shade over 9% in 2017 compared to an 11.45% advance for the yellow metal.

Markets Pull Back

The unsurprising reaction of the global media to this week’s escalation of tensions with the Democratic People’s Republic of Korea (i.e. North Korea) is still having a lingering effect on investors and indeed the public. Along with gold prices surging, bonds rose due to the safe-haven demand, sending the 10-year T-note yield below 2.20%. Thursday was the most volatile trading day Wall St has seen in months.

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However, the less panicked (perhaps more subdued) trading activity on Friday is an indication that most of the world expects to live past the weekend. As serious as even the threat or suggestion of war over nuclear weapons should be taken, the odds of any such conflict are still incredibly low. The more likely consequence of the DPRK brinksmanship is a disruption of trade relations among the three big powers in the Asia-Pacific region: China, Japan, and South Korea—who boasted the second-, third-, and eleventh-largest share of the global economy last year, respectively. Economic warfare (such as sanctions) could do much to damage the common interests of these three American partners in East Asia.

The dollar was dragged lower by the geopolitical tensions (and their potential economic consequences) outlined above. This strengthened the yen to nearly below ¥109 per dollar, while the euro moved back above $1.18. On the DXY index, the USD tumbled 0.3% to just 93.1.

According to the Labor Department on Friday, inflation was largely stagnant in July. Consumer prices ticked just 0.1% higher during the month after coming in flat during June. This fell short of estimates. Even when volatile factors like food and energy are stripped out in the “core” consumer price index (CPI), the change was up the same 0.1% over last month and the same 1.7% higher year-on-year.

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Stocks opened slightly higher in the U.S. after suffering a considerable correction this week as the North Korea story emerged. This followed a mind-boggling rally that saw some of the major indices post double-digit winnings streaks of more than 10 sessions. Retail continues to get battered, as shares of JC Penny fell to an all-time low. Investors punished ride-sharing company Uber, once widely lauded for being an innovative and disruptive force in the markets, for news of an ongoing backlash against former CEO (and still current board member) Travis Kalanick. One major shareholder is filing suit against Kalanick, going as far as declaring a “state of emergency.”

While wholly unrelated from the markets, get outdoors and keep an eye out a week from Monday (August 21st) for the once-in-a-generation solar eclipse that will be clearly visible in the United States. The total solar eclipse begins passing across the U.S. heartland on Monday, beginning in the northwest extreme of the country and moving east all the way to South Carolina.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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