Morning Market Update July 26: Gold Set To Finish Strong For Week

July 26th, 2013 by

What Asia giveth, Asia taketh away, as gold gained overnight after the New York close, but gave it all up to open below Thursday’s close but slightly above Thursday’s open. Silver opened moderately lower in New York.  Gold is still up almost 8% over the last three weeks, and is poised to notch another week of gains. Some of today’s drop in the yellow metal is attributed to profit taking after it hit $1,340 overnight.

Steering factors are mixed for gold today, as they were yesterday. The dollar hit a five-week low overnight, and hit a two-week low versus the yen. However, oil futures were also lower again today, offsetting the boost from a weaker dollar.

Traders are adjusting their positions ahead of next Wednesday’s Federal Open Market Committee meeting, which will occur in an environment of very thin volumes. The dollar’s plunge overnight is partially due to a Wall St. Journal report that the Fed is leaning towards focusing more on unemployment, which would mean extended quantitative easing measures.

Rumors that a movement is afoot in Congress to have Janet Yellen named to succeed Ben Bernanke as Fed chairman is also weighing on the greenback. Yellen is considered even more dovish than Bernanke, increasing the chances that the $85 billion a month in bond purchases by the government will continue.

In Asia, the Chinese government announced its latest measures in culling excess capacity from its industrial sector, ordering companies in 19 different industries to shut down outdated production facilities by the end of September. Peoples’ Bank of China officials reiterated that the government would be helping smaller companies in certain industries to obtain needed credit, while the government eschews the broad quantitative easing policies of the West in favor of making the nation’s industrial production more efficient.

The Shanghai Gold Exchange has already broken last year’s records for imports, with a year-to-date total of 1,198 tonnes, compared to 1,140 tonnes for all of 2012.

The Shanghai market closed down half a percent, while Hong Kong stocks notched a .3% gain in light volume. The Nikkei was down nearly 3%, near a three-weak low, on profit taking and a strong yen. This snaps the five-week winning streak for the Japanese markets.

Gold premiums in India have hit $20 over spot price as the shortage of gold worsens, due to government edicts aimed at cutting imports. This is resulting in an explosion in gold smuggling, which means that actual gold imports for India will likely be much higher than official numbers this year.

Euro shares were essentially flat in mixed trading, gaining only two points. A mixed bag of earnings reports offset the gains in the euro currency, which sits at over 1.32 after hitting a five-week high overnight. Some analysts see the euro gaining in the short to medium term, as the ECB is not devaluing the currency like the U.S. and Japan are devaluing theirs.

U.S. stocks opened moderately lower on mixed earnings reports, as rumors swirl that the Fed will start reducing bond purchases in September – exactly the opposite theory as the one hammering the dollar today.

by David Peterson