Gold and silver were moderately lower in overnight trading in Asia and Europe, drug down along with raw commodities as the U.S. dollar continues to strengthen. Precious metals saw a boost on the New York open back up to the level of Friday’s close, but are trending back down.
The double whammy of the Fed lowering its level of bond purchases, and China’s war on “shadow banking,” continue to pressure stock markets across the globe. Bonds are dropping everywhere, with Treasuries yields hitting a two-year high. Fears of economic contraction in China, coupled with the ever-stronger dollar, is pressuring raw commodities and oil, which are also priced in dollars.
The dollar is posting its fourth day of gains, as the euro rally fizzles. The euro was down below 1.31 this morning, and the yen was down to 98.
In Asia, Chinese stocks were down 6.3% on high volume, the largest decline in over three years, as the Peoples Bank of China proves it is serious about stamping out the “shadow banking” market being conducted by banks. A spokesman for the Chinese central bank said that there is plenty of liquidity for “normal operations” as banks screamed for more money supply. Central bank officials told banks to control their risks from credit expansion, a direct warning to clean up their act.
The dive in Chinese stocks drug Hong Kong stocks lower, while in Japan, the Nikkei dropped 1.3% in choppy, heavy trading. the Bank of Japan also took a hard line with their market today, saying that the world’s largest quantitative easing operation was big enough, and there was no need to add to it to deal with “temporary market turbulence.”
On Wall St., the S&P 500 hit a nine-week low by 10am on heavy trading. The dollar is well above Friday’s close, as bond yields continue to spike. Stocks are firmly into a “good news is bad news” mode again, as any improvement in the U.S. economy will give the Fed more reason to take away the punchbowl of easy money.
With gold below the operating costs of a good number of miners for the third day, expect more attention to be paid to announcements of the closure of under-performing shafts and drops in production. Also be prepared for gold scrap dealers to keep their goods off the market until prices improve.
As gold shows signs of stabilizing at current levels, those waiting to see if it dropped more before buying may be pulling the trigger today. Look for temporary supply constraints in gold coins and smaller bars if this keeps up.