Gold and silver are near unchanged this morning, as the markets absorb the expiry of options. Traders will have to roll over or buy out speculative positions today.
The platinum group metals (PGMs) saw some options-related profit-taking in early COMEX trading this morning, with platinum seeing the heaviest action. The mineworkers strike in South Africa, which has closed 40% of global platinum production for nine weeks, still drags on, with mining companies saying that deterioration of some mines has reached the point where they will have to be completely closed. Some mineworkers report that they are willing to accept the companies’ offer of a 9% raise, but are afraid that union enforcers will kill them if they try to return to work. There have been several deaths during the strike, as workers from rival unions have been attacked while trying to report to work. In other South Africa news, Harmony Gold reports that first quarter gold production will be as much as 15% lower than last quarter, due to a fire in one mine and a flood in another.
More gold news reports that net Chinese gold imports through Hong Kong last month reached 112.3 tonnes, almost twice the volume of this time last year, and the highest level since October. The government has allowed more banks to import gold under the quota system, in order to meet domestic demand, and some businesses are buying bullion to use as collateral for loans. Note that this 112.3 tonnes only counts imports through Hong Kong, and not Shanghai or other avenues.
In business news, durable goods orders in the U.S. rose twice as much as expected, by 2.2%, fueled by the largest increase in automobile demand in a year. Core durable goods, which strips out military orders and commercial aircraft, came in under expectations, rising 0.2% compared to estimates of 0.3%. Inventories rose 0.8% to a new all-time record, intimating that many of those new cars are the result of automakers “channel stuffing”, that is, forcing dealers to carry high inventories to boost production figures for Wall St. Capital goods ex-aircraft dropped 1.3% last month, but the stock market is instead focusing on the happy durable goods numbers.
Wall St. opened higher on the durable goods report, which also lifted European stocks. Markets were assisted to a positive close yesterday by a jump in U.S. consumer confidence. Stocks in Hong Kong and Japan made gains, while the Shanghai composite was down slightly, by 0.2%.
Chinese banks are getting with the program of not extending loans to failing companies willy-nilly with the expectations that the government will cover losses. The public is also taking the lesson of recent “investment trust” and co-op failures to heart, and backing off risky high-yield speculation. There was a bank run on two small rural banks yesterday in an area that has seen numerous failures of investment trusts, sparked by incorrect rumors that one bank was insolvent.
While the situation in Ukraine seems to have died down somewhat, after Russia’s annexation of Crimea at gunpoint, the Russian economy has paid a price. Despite no serious sanctions over Putin’s actions, the uncertainty over the situation has accelerated the flight of foreign capital that began late last year. Over $5.5 billion has been pulled out of the Russian stock and bond market since January, compared to $6.1 billion that left the country in all of last year. Total capital outflow for the first quarter of 2014 is estimated at $70 billion, more than the $6.3 billion of all of last year combined.
While the MICEX stock market in Russia and the rouble have covered slightly in the last two days, they are still down 13% and 7.5% for the year, respectively. The World Bank estimates that Russian GDP has already been slashed in half to 1.1% for 2014, and if more sanctions are imposed, they will dump the nation into a recession.
On the currency front, the dollar is once again struggling to stay above 80 on the DXY index, while the European Central Bank continues to talk the euro lower by hinting at quantitative easing in the near future. The dollar is gaining marginally against the yen and the yuan, good news for both Japan and China.