Midday Market Update August 26: Economic Woes Supporting Gold, Silver

August 26th, 2013 by

Gold spiked to an 11-week high of $1,407 in Asian trading overnight, before settling down in the high-1,390s range. It has maintained that level through European trading into midday in New York. Silver has trading comfortably over $24.00 since the Asian open, and is probing the $24.50 level in U.S. trading.

SPDR, the world’s largest gold ETF, recorded inflows of 6.6 tonnes Friday, the largest one-day  buy since October 8, 2012. The CFTC reports that hedge funds and money managers have increased their long positions on gold to the highest level since February.

The big economic news this morning is U.S. durable goods and capital goods orders for July resoundingly missing expectations, and plunging from June levels.  Durable goods orders dropped 7.3%, almost double the expected loss of 4%. Orders were up 3.9% in June. Capital goods fell 3.3%, against an expected increase of 0.5%

This report caused the dollar to plummet before recovering, and put Wall St. in a “bad news is good news” rally, upon expectations that, combined with dismal housing numbers on Friday, the news would encourage the Fed to refrain from reducing its $85 billion a month in bond purchases. These bond purchases have been widely credited as the major reason for the stock market rally.

Supporting factors for gold in the near term is the news that Syria has used chemical weapons against rebel troops, killing civilians in the process; threatened gold miner strikes in South Africa; as well as a delay in Fed tapering causing more money being printed. Some analysts are seeing the possibility of gold hitting the mid-$1,400s in September, and silver breaking $25, while others believe that the Fed will go ahead with a slight reduction in bond purchases.

In Asia, the Nikkei lost 0.2% as most traders stood on the sidelines, among worries that the Abe government would institute a sales tax and worries over Fed tapering. The Hang Seng in Hong Kong rose 0.7%, the best day since August, on news that mainland China’s economy is getting back on track and should meet the government’s growth projections. The Shanghai index in China was up a robust 1.9%.

In Italy, Silvio Berlusconi’s political party is threatening to bring down the government if he is expelled from the Senate over his conviction for tax evasion. This ultimatum is causing turmoil in European markets as investors flee Italian stocks and bonds.

by David Peterson