Morning Market Update Dec 5

December 5th, 2012 by

Overnight trading in Asia provided a lift this morning, as the Shanghai and Hang Seng Index were boosted over 2% on good news from China. The Chinese economy is showing continued expansion, and the new Party leaders have announced support for the economy in the form of more infrastructure projects.

Conversely, news from the EU wasn’t as rosy, as data showed a slowdown in both consumer and business spending, and the UK announced new austerity measures. Gold was over $1,700 an ounce in early London trading as the euro came down from recent highs, and the U.S. dollar hit six-week lows overnight.

In the U.S., the Fiscal Cliff stalemate continues to drag the market down. The dollar is recovering from overnight lows on traders covering shorts. There is a lot of economic data coming out today, which will affect the market, and many await the results of next week’s FOMC meeting, where a new round of quantitative easing (QE4) is expected to be announced.

Gold continues a non-traditional path of following the equities and raw commodities instead of acting in opposition to them. This is probably from the large amount of “paper gold” which is used for short-term speculation, rather than treating gold as the long-term inflation hedge it has traditionally been used for.

Meanwhile, physical gold continues to be valued by those outside Wall St. The South Korean central bank bought 14 tons of gold last month using foreign currency reserves. As their gold holdings are still less than 2%, more bullion purchases are expected. Many other central banks in emerging nations are expected to continue increasing their miniscule gold reserves as more trillons of paper money is poured into the system by the largest nations. Gold ETFs also are showing growth, as SPDR adds another 4 tons to their holdings just yesterday. India is seeing gold purchases pick up as the rupee strengthens against the dollar, despite the Indian government raising taxes on precious metal purchases in an effort to curb enthusiasm.

by David Peterson