Morning Market Update June 5

June 5th, 2013 by

Gold is up on less than expected employment numbers in the U.S., which has lead to a decline on Wall St. and a weakening dollar.  The ADP private sector employment numbers came in at +135,000, against expectations of +170,000. April numbers were adjusted downward to +113,000 from +119,000.

Oil rose on news of declining U.S. crude inventories. This, combined with the weaker dollar, are helping precious metals.  Unrest in South Africa, which had led the president to threaten to deploy “peacekeeping forces” to stop the bloodshed between two warring mineworker unions, is supporting platinum group metals. South Africa produces 80% of the world’s platinum.

Reports about a drop in physical demand for gold in China have not told the complete story. The drop occurred because mainland Chinese banks ran out of gold and had to submit new requests to the Chinese Central Bank for permission to import more gold.

In other Asian news, the Nikkei sold off to a tw0-month low overnight, in displeasure over Prime Minister Abe’s lack of details on how he will keep yesterday’s promise to increase personal incomes by 3% a year. Stocks in Hong Kong dropped to a six-month low in its continuing decline, while Chinese stocks are now trading near their low for the year.

India has announced additional restrictions on importing gold on commission, in an effort to not only curb imports, but to level the playing field among all types of importers. Indian gold imports for May were even higher than in April, hitting 162 tonnes. These additional restrictions raise expectations of an increase in gold smuggling, already rampant.

In Europe, all eyes are on the European Central Bank meeting tomorrow, even though expectations are that the central bank will not lower interest rates. Eurozone retail sales declined 0.5% in April compared to March, against estimates of a 0.1% decline.  The year-over-year decline was 1.1%. This is fueled by high unemployment, especially youth unemployment.

In the U.S., stocks are down over the disappointing private sector employment numbers, and the 15% drop in mortgage applications. The Mortgage Bankers Association reports that the average 30-year fixed rate mortgage is now up to 4.07% More disappointing news came in the form of orders for manufactured goods improving 1%, against expectations of 1.5%

This bad news is bad for the dollar and good for gold, as it lessens expectations that the Fed will stop or curtail its 485 billion a month bond purchases, despite two Fed branch presidents calling for the tapering of quantitative easing measures. The liquidity the Fed pumps into the economy, the worse inflation pressures will eventually be. It also has the effect of forcing investors out of bonds and into riskier areas, such as junk bonds and stocks, inflating and distorting their true value.

The one word you hear lately, no matter what market you are talking about, is “choppy.” Stocks, currencies, precious metals, and base commodities are all described as “choppy.” As precious metals continue to trade in a tight range, the pressures build for a breakout. While no one can predict the direction, it does seem that gold and silver have built a double bottom, and are only lacking a strong enough stimulus to move one way or the other to break them from their rut.

by David Peterson