Factors Affecting Gold for May 23, 2014

May 23rd, 2014 by

confusedWhat Happened Yesterday?

Gold spiked on a huge increase in first-time jobless claims, but good news on manufacturing output helped the dollar, which hurt gold.

Platinum took off after news of another miner stabbed to death in South Africa by members of a rival union which is striking against platinum mining companies. This is the fifth miner killed for crossing the picket line in only the last two weeks.

Palladium prices also rose. The least-known of the precious metals is handily outperforming most assets, with a 16% year-to-date gain.

What’s Up For Tomorrow?

1) Jockeying for the Long Weekend

Markets in the U.S. will be closed Monday for Memorial Day weekend. With terrorist attacks in China, naval confrontations between China and Vietnam, open warfare in the eastern Ukraine ahead of elections on Sunday, AND anti-austerity parties gaining ground in the European Parliament elections winding up this weekend (phew!), no one is going to want to be in an exposed position.

What to Expect

Traders and speculators are going to hunker down for the three-day weekend, which should bring a bit of risk-off flavor to the markets.

Effect on Gold

Short-term traders are not going to want to be short on gold over the weekend, at least not without a good deal of hedging.

2) German GDP and Ifo Reports

Friday sees the release of the Ifo Business Sentiment report, as well as the GDP numbers for the first quarter. The Ifo report is used to gauge future business expectations. The GDP reading will greatly affect European stocks and the euro, since Germany is the engine that powers the EU.

What To Expect:

The market is expecting great things from Deutschland, with GDP estimates roughly double that of the fourth quarter of 2013- +0.8% quarter over quarter, and +2.3% year over year.

Effect On Gold:

Strong numbers here could help the euro. A strong euro = a weaker dollar, and a weaker dollar = higher gold prices.

3) U.S. New Home Sales

The markets have been riding the artificially-boosted housing market to new highs, thanks to Fed quantitative easing policy. New home sales have a larger ripple effect than existing home sales, due to more appliances and related things being purchased.

What To Expect

Analysts are expecting a big increase from March’s disappointing numbers, from 384,000 to 420,000.

Effect on Gold

Another miss here could dampen enthusiasm over the economy, especially with Thursday’s bad jobless numbers.

4) Breakdown in South African Strike Negotiations

Tomorrow is the last day of court-ordered mediation between platinum mining companies and the striking mineworkers’ union AMCU. It is also the four-month anniversary of the beginning of the longest mining strike in South African history. AMCU refuses to budge from demands that pay be more than doubled for most workers, with the rest getting large raises as well. The companies have maintained that these demands are impossible to meet in an industry where 40% of the mines are already losing money.

What to Expect

More bloodshed is expected, as starving miners brave the picket lines to return to work. The miners have not been paid at all for three months, and on the average have ten dependents.

Effect on Gold

40% of the world’s platinum production, and good portion of palladium production, have been halted for four months. A new palladium ETF in South Africa has been seeing massive buying, and is sucking up a large portion of locally available metal. The markets have finally woken up to the crisis, and both platinum and palladium have seen healthy increases.

There is only so long that “certain parties” can keep the gold (and silver) price down with so much pressure from the PGMs.

5) Chinese Response to Muslim Terrorist Attacks

Thirty-one people were killed in the latest terror attack in China’s northwest province of XinJiang. The Uyghur minority of the desolate region are fighting for independence from Beijing.

What to Expect

The Communist government has already threatened fierce reprisals for past terror attacks. There is no way that the Chinese will willingly lose such an oil- and mineral-rich area that borders both India and Russia. Xinjiang also borders Afghanistan and Pakistan, giving separatists easy access to Taliban and mujaheddin resources.

Effect on Gold

Xinjiang is a gold producing region, as well as a source of natural gas and coal. Escalating violence in the area could lead to an increase in domestic gold demand in China, which already consumes far more than it can produce. There is also the save haven effect to watch for, if political or economic stability seems threatened, and other minorities decide to take advantage of the Army’s distraction in XinJiang.