Metals are trading near unchanged from Friday’s close, as European and US stock markets are in the red. Gold and silver saw a modest pop right before the COMEX open, but soon drifted back down to unchanged.
Platinum and palladium are trading in a tight range, which is commonplace for this time of year.
The dollar is steady this morning, and may be building a floor around the 80.5 level on the DXY index. The yield on the 10-year T-note this morning in 2.47%, as more people rotate at least some of their money out of stocks and into bonds in a safe haven or diversification move.
Friday’s Closing Prices
Stock markets Friday decided that they feared a rate hike by the Fed more than the start of World War III, with precious metals down modestly to end the week. Spot gold closed Friday at $1310.90, down seven dollars from Thursday, but up $5 for the week. COMEX gold futures (aka “paper gold”) close with a slight loss for the week.
Silver was down 27¢ on Friday, but only lost a penny for the week. Platinum closed Friday down $13, losing only $2 for the week, while palladium closed at $878, down $5 for the day and up $10 for the week. Supply concerns are keeping palladium bid, with it outperforming the other precious metals on the dual concerns of South African supply and Russian sanctions over its support of Ukrainian rebels. Between them, the two nations account for 78% of the world palladium supply.
The SPDR gold ETF saw 3.5 tons of outflows for the week, but is still 10.5 tons up for the year.
The Israeli Army offensive into the Gaza Strip has been expanded, with more troops put into the front lines in house to house fighting. Over 500 Palestinians and 20 Israelis have been killed since the terrorist group Hamas launched the latest round of violence with rocket attacks on Israel.
The U.S. is working with Egypt in an attempt to get the two sides to agree to a cease-fire lasting more than the five hours of the last one. So far, the violence hasn’t widened beyond the Gaza Strip. Of Israel’s neighbors, Jordan wants nothing to happen to inflame the large amount of permanent Palestinian refugees in its territory, Syria is in the middle of a brutal civil war, and the military-run government of Egypt considers Hamas an enemy due to the alliance between Hamas and the Muslim Brotherhood.
The most likely avenue of the conflict spreading would be if Hezbollah, which controls much of southern Lebanon, decided to open a second front against Israel on its northern border, to take some pressure off Hamas. This is unlikely, as their patron Iran has them fighting in the Syrian civil war on the side of the Shiite government of Assad.
Pressure is building against Vladimir Putin and Russia, as reports circulate that pro-Russian rebels are sending the “black boxes” and wreckage of Flight MH 17 to Russia, instead of letting international crash investigators access to them. The EU has somewhat reluctantly joined in contemplating a reaction to the rebels using sophisticated surface to air missiles to shoot down the airliner, where 298 people lost their lives.
European stocks are solidly in the red as worries about the “boomerang effect” of more sanctions against Russia may cause to the fragile EU economy. This has been a major playing card for Putin to get away with what he is doing, constantly reminding the Europeans of their dependence on Russian petroleum and natural gas. Wall St. opened lower as well, with Gaza and Ukraine weighing on the market.
The yen and Swiss franc are seeing more safe haven bids on the unrest, as well as German and U.S. bonds.
Speaking of currencies, the Serious Fraud Office in the United Kingdom has opened up a criminal investigation into currency manipulation in the foreign exchange markets. Reuters reports that fifteen regulatory agencies are investigating corruption in the forex markets.
We will have to see if they uncover more cases of gold manipulation as well, after Barclays was fined $44 million after one of their traders manipulated the London Gold Fix single-handedly, or will they say that it “wasn’t in the scope of the investigations.”
The government in India may have to start fighting their trade deficit on another front, as the severe restrictions and high import taxes on gold have caused citizens to turn to silver as an alternative. In April alone, India imported 711 metric tonnes of silver. That is not a typo. That was also up 148% from March. In just the first four months of 2014, India has imported 1,921 metric tonnes of silver.
There’s no economic reports of any importance out today, but watch the U.S. consumer price index tomorrow. Even as it has been altered to not show as much inflation as it has in years past, the markets will use this to extrapolate the timing of the first Fed hike in the overnight funds rate, which has been at nearly zero since 2008.
This Fed policy has fueled the easy credit and low rates that has destroyed many retirees’ 401(k)s, and led to extremely risky behavior in the markets in a “reach for yield.” Junk bonds now pay less than investment grade bonds did just a few years ago, leading to a greatly enlarged tail risk for individual investors and fund managers alike.
Another big report tomorrow will be existing home sales in the U.S. This is used as a gauge of consumer confidence and credit-worthiness.