Morning Market Update March 4

March 4th, 2013 by

Political paralysis in the U.S. and Italy are the main economic stories today, with China adding a little equity-depressing news as well. These developments are helping gold prices firm, even though the dollar continues to be strong and oil weak.

Italy may be headed for new elections soon, as the leader of the anti-establishment Five Star movement rejects an alliance with either Bersani’s or Berlusconi’s coalitions. Beppe Grillo, spokesman and leader of the new third faction in Italian politics, says that the only way forward for Italy is the expunging of all the career politicians of both the left and the right.

European Union delegates are meeting today in Brussels, to discuss not only Italy’s rejection of austerity measures, but also the mess of the Greek and Cypriot bailouts. Germany is facing increasing resistance from its citizens regarding paying for the bailout of all these other countries.

In the U.S. Congressional Republicans and President Obama continue their attempts to paint the other as the bad guy in public opinion, as mandatory furloughs and cuts begin due to the “sequester.” The sequester was supposed to be so horrible that it would force cooperation in Washington, but politicians underestimated their own disfunctionality.

Despite the show of political immaturity in Washington, the dollar is mostly steady today after hitting a six-month high on Friday. Oil is also steady, after hitting a two-month low on Frdiay. Gold is mostly steady against these dual headwinds, gaining strength from a declining euro and some safe haven buying in the EU.

In China, the government has announced higher requirements for purchasing second homes in certain cities that are seeing runaway housing prices, which, when combined with depressing manufacturing numbers, led the CSI 300 index to close at its lowest level since November 2010.

In Japan, the Nikkei was up sharply on expectations of the new Bank of Japan chairman easing monetary policy, but the gains were limited when a technical error stopped futures trading.

Hedge funds and money managers are increasing gold longs, as the yellow metal is at levels where placing new shorts is a risky bet. This is also helping gold.

by David Peterson