Midday Market Update August 14: Silver Shining

August 14th, 2013 by

Gold was near unchanged this morning in New York after losing 1% yesterday, but caught a moderate bounce around 10:30am when the dollar dropped solidly into negative territory. Silver continues to outperform the other precious metals, standing strong yesterday to hold on to Monday’s moderate gains, and building on that strength today.

Physical demand for gold in Asia was muted overnight, as Hong Kong markets closed due to a typhoon warning, and India coped with gold import tariffs and excise taxes being jacked up once again.

The European Union has posted its first growth in composite GDP in six quarters, marking a hopeful end to the regional recession. Composite GDP rose 0.3% for the second quarter of 2013, led by Germany’s 0.7% increase and France’s surprise 0.5%. Troubled little Portugal, which needed a bailout from the EU and whose government almost collapsed recently over opposition to austerity measures, led the pack with a 1.1% growth in GDP. Spain and Italy are still mired in recession, however, and Greece… well, let’s not talk about that and kill the mood.

One indicator of improving EU sentiment is the German bund yields spiking to an 18-month high. Speaking of bonds, the 10-year U.S. Treasury yields have edged down, but are still near two-year highs.

The producer price index in the U.S. came in under expectations, at 0.2%, with core PPI almost stagnant at 0.1%. This is adding ammo to the concerns of some economists over deflation dangers, and may influence the Fed to push back any plans to stop the $85 billion a month in bond purchases being conducted in an effort to stimulate the economy.

The dollar index has been struggling to stay in positive territory, with a shift solidly into the red in mid-morning trading in New York. This gave precious metals a little boost, helping gold break out of flat trading to over $1,330 an ounce,

Markets are still thin, with many traders on summer vacation. Watch the violence in Egypt and economic situation in Greece, as these two factors seem to have the greatest potential to move precious metals prices in the short term, next to U.S. economic data. Anything affecting Fed taper expectations will remain the biggest influence on gold.

by David Peterson