Tough words from the EU on possible sanctions against Russia as riots rock Venezuela and Turkey are keeping gold near the six-month high it hit yesterday. COMEx gold closed at $1,370.50 yesterday, the highest level since September 9, 2013. The 12% year to date gain for the yellow metal is the best start in six years, as hedge funds net longs are reported at their highest in 14 months.
Gold had risen above $1,370 in Asia overnight, but saw some mild profit-taking in Europe after gaining $20 an ounce in New York. Silver saw slightly more profit-taking, erasing gains earned in Asia, while the PGMs are basically flat.
The big economic data not related to people pointing guns at each other is coming out of China this morning. Industrial output for the first two months of the year rose 8.6%, down from a 9.7% increase in December. Analysts were expecting a 9.5% gain. Retail sales in the Middle Kingdom rose 11.8%, also weaker than expected.
While these are numbers that most other nations only dream about, they represent multi-year lows for China, and cast doubt on the government’s target of 7.5% growth in GDP. Part of this is related to the government trying to shift the focus of its immense economy away from strictly exports, to a more consumer-driven economy. In comparison, consumer spending makes up 70% of U.S. GDP.
Another aspect of China’s refocus is shaking out failing companies in over-capacity industries such as coal, steel, and concrete. Private loans by speculative investment firms to companies that can’t qualify for bank loans makes up a large part of the Chinese financial system, and exposes the economy to substantial risks. The government has stopped bailing out companies that can no longer service their “shadow loan” debt, and the first-ever corporate bond default has rocked the Chinese markets. Speculation is running rampant on how many more companies are on the brink of default, which is driving safe haven flight to gold in Asia.
Things are brighter in the U.S., where retail sales for February recovered to post a 0.3% gain. January’s numbers fell 0.6%, blamed on the sequential polar vortex blizzards that month. A lot fewer people lost their jobs in the U.S. last week — 9,000 fewer, as first-time jobless claims dropped to 315,000. That’s a three-month low.
Europe is seeing improvement as well, as German exports were stronger than expected, and the economy of both Italy and Portugal are on the upswing.
In Asia, the weak Chinese economic numbers and a strong yen pulled the Nikkei down in Tokyo, while Hong Kong’s Hang Seng and mainland Chinese shares also dropped.
The dollar is still weak, hitting a four and a half month low. The euro is at a 2 and a half year high, at over 1.395. The former Warsaw Pact nations of Poland, Estonia, Latvia, and Lithuania are severely stressed over Putin’s threat to invade the rest of Ukraine. Fear of being reconquered by the Russian bear was the main reason they clamored to join NATO, but the lack of concrete responses by the U.S. and EU to the invasion of Crimea has them wondering if they might be abandoned if Russia comes for their eastern borders next.
To recap, gold is consolidating the big gains it has made earlier this week, but another Chinese bond default could see it jump some more. Tensions are building over the referendum to be held in the Crimea on Sunday by the Russian-installed government, where the only choices are declare independence, or be annexed by Russia. Monday will be “Showdown at the OK Corral” for the EU, on whether they impose even minor sanctions, or fold to Putin.