Gold and silver are moderately lower this morning in New York, in light volume. Platinum is near flat, while palladium is posting modest gains.
Treasuries are down, with the yield on the 10-year note at 2.63%. The dollar gave up early slight gains to trade near unchanged in New York this morning.
Goldman Sachs has joined some other major banks in predicting that the Fed will raise its benchmark overnight rate in the third quarter of next year, instead of the first quarter of 2016. These predictions are based on June’s non-farm payroll numbers, but Yellen has repeatedly said that she was perfectly willing to let inflation exceed 2% if she deemed it necessary. The labor participation rate (the number of eligible people actually employed) is at 34-year lows, and hundreds of thousands of people who would prefer full time work are stuck in part-time jobs.
The yen is seeing some safe haven action, as Germany’s industrial output was reported to have unexpectedly dropped. As Germany goes, so goes the EU. The 1.8% drop in output pulled European stocks down, as well as the euro currency.
Speaking of currencies, the U.S. is protesting China’s policy of deliberately weakening the yuan in order to help their economy. In the face of the Fed’s years of money printing, the Chinese are likely to ignore these protests. They are more focused on implementing stimulus measures aimed at their agricultural sector, and boosting low-income housing in a market where millions of Chinese families are priced out of a home. They are avoiding Fed-style money printing in an effort to prevent asset bubbles from growing any larger than they already have.
Wall St. opened lower, following Euro and Asian stocks into the red. Some traders are blaming the Goldman Sachs forecast for short-term interest rates to rise next year, but there’s really little to keep the stock markets inching up to new highs in light trading.
The continued weakness/lack of confidence in the dollar will have more effect on gold than short term interest rates. Long-term interest rates have even less effect. From 2001 to 2011, the yield on the 10-year Treasury note was over 4%, yet the price of gold rose 638%. Some analysts worry that stagnant wages are combining with cost-push inflation (especially in food) to set up another round of “stagflation”, like the U.S. saw in the 1970s. The Iraqi civil war could be the catalyst for a new “oil shock” that would unleash high inflation.