Gold held on at its 200-day moving average during yesterday’s correction, as saw a rally overnight. Physical buyers in China returned from holiday to join bargain hunters, and sent gold to a two-week high. Weakness in stocks and bond yields made a position in gold an easy choice in Europe as pro-Russian demonstrators seized provincial government headquarters in eastern Ukraine yesterday.
Platinum and palladium have recovered from what analysts called a “counter-intuitive” trading day that saw prices drop in the face of a three-month old strike in the world’s largest platinum sector, and economic sanctions against Russia, the supplier of half the world’s palladium. (“Counter-intutive” is the polite phrase for “blatant manipulation”.) The world’s first platinum ETF has already recorded over 1 million ounces of inflows, in a market where 40% of global production has been shut down for over 3 months. Two new palladium ETFs have also been seeing appreciable attention from investors.
Ukraine is back in the news for all the wrong reasons, as pro-Russian separatists led assaults on three regional capitals in Eastern Ukraine, seizing them and calling for referendum to join Russia. The new pro-West national government in Kiev claims that the ringleaders are Russian agents, who speak Russian without a Ukrainian accent. Government security forces retook the capital building in Kharkiv, as agitators reportedly threw hand grenades and responded with “other weapons”, wounding some of the police. Approximately 70 people were arrested.
The dollar, curiously, is down sharply, acting once again as an “anti-safe haven” amid Ukraine worries, while the euro is up. The British pound is near 4 year highs, and the yen is at a ten-day high against the dollar. One almost gets the idea that the international community is losing faith in the greenback as a safe haven. Also on the currency front, the U.S. is warning China over what it sees as Beijing’s deliberate moves to weaken the yuan ahead of the spring IMF meeting.
Stocks had a very bad day on Wall St. yesterday, with the S&P 500 and Dow Industrials both falling in the biggest one-day drop in two months, while the Nasdaq plummeted in the biggest single-day loss since 2011. Stocks began the day today near flat, and are hoping to break a three day losing streak. The S&P 500 is now negative for the year.
In Europe, stocks were unhappy over another flare-up of international tensions in Ukraine, and the receding hopes that the ECB was going to hop aboard the “QE train” and start its own bond purchasing program. The euro was higher against the dollar, and weaker against the yen.
That strong yen made for a bad day in Tokyo, as the Nikkei dropped to a two-week low after the Bank of Japan left monetary policy unchanged in their latest meeting. Tumbling tech stocks haven’t helped matters. However, stock indices in Hong Kong and China saw a lift from banking stocks and a government decision that will allow companies to issued preferred shares of stock.
All in all, it seems the stock market may be topping out. Dennis Gartman said he expects a correction to below the 100-day moving average soon, and has pulled his money to the sidelines. Most analysts agree that stocks are overdue for a correction, and the longer it takes to do so, the worse it will be.
Oil prices are stabilizing, which is good for gold, even though Libyan will soon be increasing exports. Rebels have reached an agreement with the government in Tripoli to return control of four of the nation’s nine oil ports to the government, in exchange for amnesty and an investigation into grievances over shared oil revenue that date back to the 2009 of dictator Gaddafi.
Another supporting factor for gold is plunging bond yields on U.S. Treasuries. Treasury yields experienced a “death cross” yesterday, as the 50-day moving average dropped below the 200-day moving average. This means yields should drop lower. Lower bond yields in an environment of low-to-normal inflation reduces the opportunity cost of holding gold.
On the banking front, the Fed has announced that it is delaying implementation of the Volcker Rule, which would restrict banks from engaging in certain types of risky behavior, for two more years. That’s two more years that the banks can gamble with your money.
One last bit on Wall St – Bloomberg reports that over 200 private equity firms have been found to be charging “unjustified fees and expenses without notifying investors.” Who’s in your pocket? Holding physical gold (or silver) outside the banking system eliminates risks such as these.