Morning Market Update July 23: Too Soon To Call A Bottom Just Yet

July 23rd, 2013 by

Gold softened slightly in European trading as the dollar regained ground from yesterday’s big selloff, as expected. Silver is moderately lower after weakening overnight, while the PGMs are having a bad day. Platinum experienced a series of selloffs overnight, while palladium dropped sharply in Asian trading. Palladium had been the precious metals leader lately.

In additional to the corrective bounce in the dollar, oil is seeing some profit taking and wariness before US petroleum stockpile levels are announced. These are both bearish on gold, and the fact that Asia didn’t step up and continue the US rally overnight may give some pause.

Wall St. opened higher on good earnings reports from Netflix, duPont and Travelers. The 10-year Treasury note is back below 2.50% at 2.49%, easing some inflation pressures on mortgages and auto loans.

In Asia, the big news is China’s pledge yesterday to maintain a GDP growth target above 7%. At the same time, it has declared a five-year moratorium on new official buildings as part of its anti-corruption campaign. Lavish building projects for provincial and local party officials has been a favorite avenue for graft and corruption for decades.  In an effort to soak up the excess capacity in steel and cement that this will cause, the government has announced plans to expand the national railway system, including adding more high speed rail.

Prospects of fewer buildings needing wiring, and more mass transit in the world’s #2 economy sent copper and oil prices lower.

Riding on the news out of China, Hong Kong shares were up 2.3%, the biggest gain in seven months. Chinese mainland stocks were up nearly 2%. The Nikkei was up slightly in volatile trade.

The news out of China helped European stocks, which also have had good news domestically. Part of today’s gains were fueled by telecom mergers announced today.

If gold can end at the least above the $1,330 mark today, the odds of a new bottom forming at this level improve. This would echo market behavior we’ve seen for the last 8 or 9 months, where gold traded in a very tight range, resistant to good and bad news, until a breakout, where it re-established trading in a tight range. As it does, there are still hundreds of billions of dollars a month being injected into the world’s economies by central banks, and the competitive devaluation of currencies continues.

by David Peterson