Morning Market Update July 16: Gold Gains on Weak Dollar, Egypt

July 16th, 2013 by

Gold hit a three-week high Monday, and is trading above yesterday’s high this morning, supported by a weaker dollar, stronger Asian physical demand, and safe haven demand over unrest in Egypt. Oil futures are also higher on Egypt worries and shrinking inventories in the U.S.

Gold jumped on the London open as the dollar weakened ahead of U.S. Federal Reserve chairman Ben Bernanke’s testimony before Congress tomorrow. Reports that Eurozone imports and exports fell again in May, reduced economic expectations in Germany, and the threat of a no confidence vote bringing down Spain’s prime minister boosted gold and German bonds as investors moved to safe haven assets.

In Asia, physical demand picked up, in part on the violence in Egypt, where seven people were killed in violence last night.  The Nikkei hit a 7.5 week high, even as the yen strengthened to 99.50. Hong Kong markets were flat in thin volume, and Chinese markets were up only 0.3%.

Wall St. is down slightly after the opening bell, as consumer prices for June are reported to have risen more than expected. The June CPI rose 0.5% from May’s 0.1%, and posted a year over year increase of 1.8%. Price increases were driven in large part by fuel, but clothing in June saw the biggest price hike since August 2011.  Rising medical care costs also contributed.

Industrial production rose 0.3% in June, in line with analysts forecasts. Manufacturing played a large part in that increase, giving hope that things are picking up in that sector.

Palladium is seeing a boost from increased car sales in the U.S. and China, while platinum is getting some support from ETF inflows (despite the moribund Euro auto market.)

Expect to see some jockeying for position of moves to reduce risk ahead of tomorrow’s testimony on Capitol Hill by Bernanke. Today’s inflation numbers should help quell the deflation fears some Fed branch presidents have expressed, but increased manufacturing numbers may give Big Ben some leeway in starting tapering.

by David Peterson