Gold is up from overnight lows as the European Central Bank leaves key interest rates unchanged, and Chairman Mario Draghi takes the possibility of negative bank deposit rates off the table. The news sent European stocks higher, and the euro hit a four-week high.
Experts had not expected a rate drop, since the ECB had lowered rates 0.25% just last month.
Gold has dropped a bit in late afternoon trading yesterday when the Indian government announced an immediate 2% hike in gold import taxes, raising the rate to 8% (see our article yesterday for details). The chairman of the Indian jeweler trade federation was quoted yesterday as estimating the new tax would reduce Indian gold demand by 20%, but analysts believe that the reduction will be much smaller, noting that even with the new tax hike, gold in India is cheaper right now than in was last year. Other sources described continued strong demand in India immediately after the hike yesterday.
Speaking of Asian gold demand, premiums in Shanghai are reported to still be around $20, which is enticing buyers to purchase off the Western markets. This may account for slightly lower volumes reported on the Shanghai gold exchange in recent days.
Back to stocks, the Nikkei dropped below 13,000 for the first time in two months overnight The market had recently hit a five and a half year high. Chinese and Hong Kong stocks suffered from yesterday’s tightening of the money supply by the Chinese central bank, as bank rates increased.
In the U.S., first-time jobless claims for last week fell by 11,000 to a total of 346,000 newly-unemployed seeking benefits. This was about in line with the average forecast. The four-week moving average of first-time claims rose 4,500 to 352,500. Continuing jobless claims dropped by 52,000 to 2.95 million. Those receiving extended/emergency jobless benefits rose 34,000 to 1.76 million.
The Challenger Job Cut Report registered 4.5% fewer announced layoffs in May, compared to April. May is traditionally the month with the fewest announced layoffs.
The dollar is down today, hitting a four-week low overnight, as the yen and euro gain. Oil is holding steady on reports of declining U.S. inventories, but spooked by the prospect of the Fed reducing stimulus.
The one word most often used to describe all markets recently (and which I deliberately didn’t use today) is “choppy.” Equities, commodities, currencies, no matter where in the world, are being described as “choppy.” Another favorite phrase recently is “trading in a narrow range.” This is certainly seen in precious metals.
The most commonly cited cause for this is anxiety over the Fed reducing their $85 billion a month quantitative easing, which is artificially depressing bond yields and making equities the only game in town for immediate returns. Even some members of the Fed are publicly warning against the inflation dangers of all this cash sitting in bank vaults, once it finally starts getting lent out.
The public discussions on the actual effectiveness of quantitative easing for the economy outside of Wall St. is making people more nervous that the “punchbowl” could be taken away, and the party ended. Since monetary intervention of this scale has never been attempted before, no one really knows how it will play out when the Fed stops supporting the mortgage and bond markets.