Wednesday’s release of the FOMC April minutes only affected gold momentarily. Prices popped back up almost immediately, and retested the daily high.
Thursday has some geopolitical things on tap, as well as some important economic reports.
1.) European Flash PMI (4:00am ET):
France, Germany, and composite EU Purchasing Managers Indices are released between 3am and 4am. Germany is the EU’s #1 economy, and has been doing all the heavy lifting since the financial crisis. France is the Eu’s #2 economy, and has only recently pulled out of recession.
GDP for the United Kingdom will be reported at 4:30am, but is not a major factor for gold.
What to expect?
The market consensus for Germany is 54.1, compared to 54.2 the previous month, while France is expected to be flat, just above the 50 break point at 51.0. PMI numbers for the European Union as a whole is expected to come in at 53.9.
Effect on gold: The purchasing managers index can greatly affect the euro, which in turn affects gold. Since gold is denominated in dollars, and the euro is a major component to the dollar index, a strong euro is slightly bullish for gold.
2.) Elections for EU Parliament Begin
Elections for the 766-member European Union Parliament begin today and run through the weekend, with votes being counted on Sunday. This is the first EP election since the financial crisis, and anti-austerity and “Euroskeptic” alternative parties have garnered a lot of attention. These parties could, combined, account for up to 20% of the seats in the Parliament, up from the current 12%. Many people in Germany and the Scandinavian nations are tired of seeing their tax dollars being sent south to bail out countries that refuse to get their spending under control or crack down on corruption.
What to expect:
While the markets usually could not care less about EU Parliament elections, this year is much different. An abandonment of the recovery program for Greece, Italy, and Spain, and throwing doubt on the common euro currency, could lead to a break up of the union in a worst-case scenario. No one believes that such a thing in imminent, but stronger Euroskeptic and/or anti-austerity parties could start the ball rolling down that path.
Effect on gold: A tanking euro is not good for gold, but fears of economic meltdown could be bullish, if it is thought that the crisis could last.
3.) US First-Time Jobless Claims (8:30am ET):
The weekly number of people freshly unemployed is seen as an important economic barometer, and has the ability to cause large movements in the markets.
What to expect?
Last week saw a huge drop in first-time jobless claims, to 297,000 people losing their jobs. This is levels not seen since 2007. Since the previous week also saw a decline, the market is expecting a snap back towards the mean, with a consensus 310,000 people getting their pink slip.
Effect on Gold: If people think that the economy is going gangbusters, money is going to flow into stocks, and out of bonds and gold. If the economy looks like it’s crashing, money will flee stocks to a safe haven. No blizzards to blame bad numbers on, anymore.
4.) Existing Home Sales (10:00am ET):
Existing home sales tally the number of previously constructed homes, condominiums and co-ops in which a sale closed during the month. Existing homes (also known as home resales) account for a larger share of the market than new homes and indicate housing market trends.(National Assoc of Realtors definition)
What to expect:
Existing home sales were down again in March, but it was blamed on a low supply of homes for sale. Analysts are expecting a slight rise, but for supplies to have remained tight.
Effect on gold: Existing home sales have a ripple effect, as people usually spend a lot of money buying new appliances, paint, carpet, etc for their newly-acquired domicile. Home sales also are seen as an indicator of consumer credit-worthiness and a sense of security (if you think you might lose your job, you don’t go out and buy a house!)
Bad numbers are indicative of a failing economy, and can have a safe haven effect for gold.
5.) Violence in the South China Sea and Vietnam
Chinese vessels and Vietnamese coast guard boats are literally jousting on the open sea, ramming each other (but not too hard) as the Chinese install an offshore oil drilling rig at an island chain off Vietnam’s coast. China has surrounded the oil rig with an estimated 70 patrol craft and fishing boats to keep Vietnamese vessels away.
Riots in Vietnam over China’s move has resulted in warehouses of Chinese goods being burned, and the deaths of Chinese nationals in Vietnam.
What to expect:
China has been seizing disputed islands in the South China Sea and building them up, to fortify their claims to areas that are also claimed by Vietnam and the Philippines. In the past, Chinese soldiers have shot dead Vietnamese military personnel, and they may have just pushed the Vietnamese too far this time.
China has amassed a large number of tanks, troops, and artillery on their border with Vietnam, in an attempt to coerce acceptance of their moves in the islands. There is a long history of military conflict between the the two nations, and plenty of hard feelings. China invaded Vietnam, which was a Soviet ally, in 1979, causing widespread destruction in the nothern part of the country. This was in retaliation for Vietnam invading Cambodia and overthrowing the Chinese-supported Khmer Rouge.
Effect on gold: This could ignite much larger safe haven demand than Ukraine ever has, if it blows up.