Today is the last trading day of the month, the quarter, and the half, as well as being the Monday of a four-day work week.
As expected, there’s a lot of squaring and “window dressing” by fund managers today, as the markets oscillate lightly on thin volume.
Gold was softer in Europe to start the week, and dipped to a daily low of $1,311 an ounce on the COMEX open. It then bounced upward, above Friday’s close. Silver eased slightly overnight, but recovered to near-unchanged in New York. Platinum was steady, with palladium slightly higher.
Economic news today showed inflation in the European Union still at multi-year lows, and bank loan activity contracting for the 25th straight month. The European Central Bank’s new “negative interest rate policy,” which charges banks 0.1% for storing excess cash reserves at the central bank, is aimed and getting billions of euros out of cold storage and moving through the economy.
In the U.S., the Chicago PMI dropped unexpectedly far for June, hitting 62.6 from May’s 65.5. Any reading over 50 is considered to denote an expanding market, though, so analysts were not overly alarmed. Pending sales of existing homes surged 6.1%, as recently flight to Treasuries have depressed yields and caused mortgage rates to drop.
Despite good news in the U.S. and bad news in Europe, the dollar is still dropping against the euro and pound, and hit a five-week low against the yen. This erosion of the dollar’s purchasing power against currencies that are deliberately trying to weaken themselves is supporting precious metals.
The big geopolitical news is the actions of the Islamic State in Iraq and Syria (ISIS,) formerly the Islamic State in Iraq and the Levant (ISIL.) The organization has changed its name to The Islamic State, declared the border between Syria and Iraq null and void, the territory under its control as the new Sharia Caliphate, and proclaimed their leader, Abu Bakr al-Baghdadi, as Caliph of all Islam.
The leaders of the terrorist army have called on all jihadis, including Al Queda, to swear allegiance to al-Baghdadi as Caliph. Since the Iranian Kurds are also Sunni Muslim, this may signify open warfare between ISIS and Iraqi Kurdistan, if the Kurds do not give up their independence. ISIS has done what Osama bin-Ladin only dreamed of, and has eclipsed his old organization in the minds of many. The Saudis, who have bankrolled Wahhabism with their oil money for decades, may be feeling ambivalent over the results. While eager to take the money of the House of Saud, most jihadis view the giant royal family as hopelessly corrupt and decadent, and unfit to rule over the holiest sites of Mecca and Medina.
ISIS is going to have massive trouble on its own doorstep, as Hezbollah cadres have arrived in Iraq to teach their fellow Shiites how to fight the Sunni terrorist army. Hezbollah has been the most effective enemy of ISIS in Syria, while helping prop up the Assad regime, and now will be working in close cooperation wit Iranian Quds Brigades special forces. Iran and Hezbollah are both determined that southern Iraq’s Shiite holy shrines and population will not fall under ISIS control, as they have been destroying Shiite holy sites in Syria.
And just to dial up the crazy, Israel has promised assistance to Jordan if ISIS attacks the moderate Muslim kingdom.
The Middle East is promising long-term safe haven support for gold, if the situation continues to escalate. No one in any market is going to want to go into the three-day weekend in an exposed position. This July 4th may see a heightened level of security against terrorist attacks, by militants wanting to “celebrate” the establishment of the Caliphate by striking at the Great Satan of the U.S.