Gold and silver got a surprise boost in morning trading in New York today, after seeing gains in London on a revived Euro. European markets recovered from the previous day’s losses on news of good earnings reports, and a Euro PMI that advanced to 48.6 in January from 47.2 in December. Another thing that is boosting confidence in the Eurozone economy is the continued early repayment to the ECB of emergency loans it granted to banks at the height of the financial crisis. The balance sheet for the ECB has shrunk to its lowest point in 11 months, while the Fed and the Bank of Japan continue to increase their balance sheets by tens of billions a month.
This positive news in Europe has outweighed the unease prompted by continued allegations of graft against the Spanish prime minister, and the increased chance that Berlusconi may win the Italian election and scrap the economic recovery plan put into effect by the previous caretaker government that was credited with preventing a complete meltdown of the Italian economy into a Greece-like situation.
Hong Kong markets continue to suffer, while the Chinese markets continue to improve on favorable economic outlook in the world’s second-largest economy.
Crude oil has recovered from yesterday’s profit taking, and is back near 4.5 month highs. This is a favorable for gold prices. The dollar is also higher on what is described as short covering. A higher dollar is usually unfavorable for gold, but gold and silver seem to be overcoming that particular headwind this morning.
Kitco News reports on a TD Securities market analysis that notes that normal correlations between gold and other markets seems to have broken down, such as gold moving opposite to the dollar. They note that the Fed’s quantitative easing is not going to end for the foreseeable future, and will continue to pump $85 billion a month into the market. They also note that sequestration, the part of the “fiscal cliff” that was kicked down the road, is looming next month, and should dampen equity markets. This should weaken the dollar and also re-establish the negative correlation between the dollar and gold, in their opinion. Therefore they recommend buying gold on major dips.