Gold held flat yesterday and through overnight trading, after losing ground to a big sell-off during Fed Chair Janet Yellen’s testimony before the Senate.
CNBC reports that at 10:55am EDT, 7,600 contracts hit the COMEX in one minute, representing approximately $1 billion in gold sold. Deliberate bear raid or automated trading gone wild, the gold price dropped over $13 an ounce, pulling the other precious metals with it. The downward pressure was short-lived, but the market decided to remain where it was ahead of Yellen’s second round of testimony today.
The dollar is near one-month highs, after gaining .24 points on the DXY yesterday. Despite the new-found strength in the greenback, gold and silver are both posting a mild rally in early New York trading, with gold back above the $1,300 mark. The strength in the dollar has the euro at one-month lows.
Oil futures are recovering slightly, with WTI back above $100 a barrel, and Brent crude back above $105.
Bonds were lower yesterday, as Yellen essentially tied increases in the near-zero percent benchmark lending rate to the employment outlook. She said that the Fed would not consider its job done until wages and the labor participation rate both rise, but said that if they did so faster than expected, interest rates would rise sooner than expected. It was that last part that spooked the bond markets.
In other monetary news, the Bank of International Settlements (BIS), called “the bank for the central banks,” yesterday warned of a global “Lehman moment” financial meltdown. Citing the reach for yield as investors ignore risk, the organization said that the global financial environment is more fragile than it was in 2007, before the banking collapse and bail-outs. It also warned that this time, the financial systems of emerging markets would be drawn into the chaos, and that their governments have little ability to rescue them.
Markets all over the world are now more debt-burdened than before the last financial collapse, as corporations borrow at artificially-low interest rates to fund stock buybacks, which makes their share price look better than it should. This has increased the level of junk bond issuance to historic highs, with interest rates far lower than the risks associated with the bonds warrant.
In economic news, China reported second quarter GDP rose 2.0%, for an annual rate of 7.5%. This is right in line with Beijing’s target. However, Shanghai and Japanese stocks are still wary over a shakeout in progress in China’s real estate sector, and closed lower.
Wall St. opened higher, fueled by mergers once again. in other news, IBM and Apple have announced a partnership where IBM will pre-load iPhones and iPads with enterprise software and sell them to corporations. This news is helping sooth the NASDAQ, which was pummeled yesterday when Yellen called out social media and biotech stocks as being overvalued.
Inflation may be getting a head start on the Fed, as the Producer Price Index for June rose 0.4%, twice as high as expected. This comes off a -0.2% reading for May. Year-to-year, wholesale prices are up 1.9%, compared to 2.0% last month. Core PPI, which removes food and energy was also up solidly, at a 1.8% annual rate.