The determination of the Federal Reserve to stay the course in gradually reducing its bond buying to zero helped steady the DXY dollar index above 80 yesterday. This led precious metals lower, but still above their 200-day moving average, which is now seen as a support level.
Silver snapped its longest rally in 45 years yesterday, while gold saw a second day of consolidation after 9 straight sessions of gains. Palladium saw the biggest rebound this morning on the COMEX open, followed by silver, then gold, with platinum seeing the smallest boost. The sharp rally was halted when the flash PMI for the US was reported to have surged three full points to the best level since May 2010.
This was in marked contrast to the HSBC flash China PMI, which dropped once again, this time to a seven-month low of 48.3. This caused trouble in emerging markets and base commodities, which rely on exports to China. The yen saw renewed safe haven demand, and is now up 4% on the year. The strong yen is weighing on Japanese stocks, which are dependent on the strength of exporters. The Nikkei closed down over 2%.
News was slightly better in Europe, as the composite Eurozone PMI shrank slightly, to 52.7 from 52.9. Analysts had expected a tiny gain of 0.2% instead of a tiny drop by that amount. This, combined with the Chinese data, depressed the Euro as wells as European stocks.
More economic news out of the U.S. shows that first-time unemployment claims last week dropped by 3,000 applications, with 336,000 newly-fired people looking for help. The four-week rolling average of first-time claims rose 1,750 to 338,500. Consumer prices nudged higher in January, led by increases in the costs of electricity, heating oil, and natural gas during a series of blizzards that reached as far as the Deep South. The CPI was up 0.1% for a year over year rate of 1.6%. Energy costs rose 0.6% from December, and housing costs rose 0.3%.
Back to precious metals, physical demand in Asia is said to be picking up as investors buy the dip. Demand from Indonesia is up, as jewelers hit the market to restock. People there are apparently buying up gold jewelry before their currency devalues even more. Data from Switzerland shows that fully 80% of gold exports from the world’s premier gold-refining nation head to Asia, with Hong Kong being the top destination. China imports the majority of its gold through Hong Kong.
This is more evidence of gold leaving the London exchange, and Good Delivery bars being recast into “four nines” pure 1 kilogram bars, the preferred size in China, before being shipped to Asia. Since the vast majority of Asian are “buy and hold” investors, most of this gold will not be reappearing on the open market for a long time, if ever.