Heavy fund liquidations and traders dumping ETFs for equities is fueling a large sell-off in precious metals, despite physical buying and news that should be bolstering prices. The sheer weight of the “paper trade” is swamping positive physical purchases. Gold hit a 10-month low overnight, and silver hit a 9 month low overnight, before finding their footing. With China on a holiday until Monday, the physical market is probably not showing all the strength it could be. Monday will be very interesting on the physical side.
First-time jobless claims last week rose by 28,000 to 385,000 claims. Analysts were expecting a drop to 353,000. This is the highest number for first-time jobless claims since November 24. The four week average for first-time jobless claims, which is a better metric to unemployment trends, rose by 11,250 to 354,250. Despite these numbers, Wall St. opened higher on news from the Bank of Japan and reassurances from the Fed that quantitative easing in the U.S. would continue.
That news from Japan was the astounding announcement that the central bank will be doubling bond purchases, and announced a target of doubling the money base in two years. Monthly bond purchases by the BoJ will be ¥7.5 trillion ($78.6 billion). The yen dropped and the Nikkei surged 2.2% on the news. Analysts expect the dollar to hit 103 in a month.
Things were not as rosy in Euroland, as both French and German PMI numbers came in lower than expected, cementing the fact that a zone-wide recession was a reality. The Bank of England and European Central Bank in meetings today both maintained existing interest rates and policies.
The dollar gained in early trading after profit-taking yesterday, and oil prices steadied after Wednesday’s losses.
Various reports today lay the blame on futures and ETFs for precious metals swooning. Commerzbank says that the reason PGMs are not benefiting from recent good news in the auto sector is from losses in the futures market. Similarly, INTL FCStone blames heavy fund liquidation for gold’s plunge in what would otherwise be a neutral to positive environment.