Silver is out-performing gold this morning, as it seeks to extend its longest rally in 45 years. Gold and PGM prices are taking a breather, engaging in some long-anticipated consolidation after light profit-taking over night.
Precious metals had plowed through multiple resistance levels in the week with barely a backward glance, so a rest was expected. Even though gold has pulled back from yesterday’s three and half month highs, it is still above its 200-day moving average – an encouraging sign for a re-test of the $1,330 level.
The dollar is barely in positive territory this morning, after hitting a seven-week low versus the euro overnight. The yen was stronger against the dollar as well, which put pressure on stocks in Tokyo. The Nikkei was down .53% on profit taking, after hitting a two and a half week high yesterday.
Today is a day of market anxiety in New York, as markets await the 2pm release of the minutes from the Federal Reserve Open Market Committee’s January meeting. This will be the strongest signal the Fed gives markets in February, as there is no FOMC meeting scheduled until mid-March. The minutes are likely to be filled with taper talk, which will probably elicit a knee-jerk reaction in the markets. This is another likely reason for gold’s slight pullback today.
As the markets await the FOMC release, they have plenty else to worry over. Housing starts in January were down 16% in January, the biggest drop in nearly three years. While housing starts in the Midwest dropped by over 67% to the lowest annualized level since 1959, the Northeast saw an increase in housing starts to 61.9% , to the highest level since August 2008. Permits for new construction were also down, by 5.4%.
In related news, mortgage applications last week fell 4.1%. A breakdown of the numbers shows a 2.7% decrease in refinancing apps, and a 6.3% decline in home purchase apps (the lowest since September 2011). Wholesale prices rose in January, with the producer price index showing a 0.2% increase.
The big news across our TV and computer screens is the deadly fights between police and protestors in Ukraine, with shots fired from both sides, and firebombs launched at police. Armored personnel carriers which were brought into Independence Square in the capital, Kiev, were firebombed by protestors as well. The nearly three-month siege by protestors in Kiev has escalated into armed conflict, with hundreds wounded on both sides, and at least 26 killed. Protestors, which might be properly called anti-government forces now, have broken into armories and made off with thousands of rifles and hundred of thousands of rounds of ammunition.
A situation not getting as much play in Western news is the anti-government protests in Thailand, which started with a corruption scandal in November. Riot police are fighting protestors who are blocking government buildings, while coming under sniper and grenade launcher fire.
On the financial side, the Chinese government is trying an incremental approach to squeezing banks out of the “shadow banking” market, by slowing removing some of the record trillions of yuan in liquidity it injected into the economy last month. The huge cash injection was intended to give banks breathing room to wind down “off the books” loans to distressed companies that could not qualify for regular financing. Now, the central bank is slowly removing the flood of yuan, giving banks time to wrap up these high-yield “investment products.”
The situation in not only Ukraine, but economic crises in Hungary, Turkey and Greece (which has failed to meet criteria pertaining to its bailout by the EU) will be pressuring European stocks, while China’s liquidity and shadow market problems will affect global markets as a whole.