Gold Rebounds on US CPI: Morning Market Update July 22

July 22nd, 2014 by

gold-rallyPrecious metals eased overnight on light profit-taking and lower safe haven demand, as pro-Russian rebels in Eastern Ukraine changed course and began allowing international investigators access to the debris field of Malaysian Airlines flight MH17.

The rebels have also turned over the “black box” flight recorders to investigators as well, which is taken as a sign that Russian president Vladimir Putin is leaning on them to cooperate before more sanctions are leveled against Russia by the West. The EU is supposed to meet on Thursday to ponder further sanctions against Russia, but are hamstrung by the dependence of the nations in the eastern EU (including Germany) on Russian natural gas.

The picture for precious metals changed on the COMEX open in New York, as the U.S. Consumer Price Index report for June was released. Gold, silver and platinum all bounced upward on the news, and the dollar retained gains obtained in Europe. The dollar is now at an eight-month high against the euro, with the euro now trading below the $1.35 mark.  A weaker euro will ease deflationary pressures in EU, the main goal for the European Central Bank.

Consumer prices in the U.S. rose by 0.3% in June, in large part due to a spike in gasoline prices. The 0.3% rise was in line with analysts’ projections. The year-over-year rise in consumer prices was 2.1%, the same as May.  Core CPI, which strips out food and energy, rose 0.1% in June, and at an annual rate of 1.9%, compared to 2.1% in May.

European stocks are up today on relief that the Ukraine situation isn’t worsening, and Wall St. opened higher on earnings reports as well as relief over Ukraine. The Nikkei finished in positive territory after a three-day weekend, and the Hang Seng close at a 2014 high.  This follows a bad day Monday for stocks globally, on skittishness over not only Ukraine, but the escalating war in the Gaza Strip between the Israeli Army and the terrorist group Hamas.

Crude oil is near flat, with West Texas intermediate keeping a close spread on Brent crude, $104/bbl to $108/bbl.

The Chinese markets are still being affected by the first complete corporate bond default in Chinese history.  Yields on short-term bonds issued by Huatong Road & Bridge Group are trading at over double the original 6%, at around 15%. Huatong announced last week that it would miss both the interest and principle on a one-year bond that matures tomorrow. Adding to the company’s woes, their CEO is now under criminal investigation.

Some analysts are pointing out that the reason Huatong can’t meet the bond payment, is that it has not been paid by local governments for numerous infrastructure projects, and is therefore experiencing a cash flow problem. There is much speculation as to whether local, provincial, or national governments will bail out the distressed company.

Today’s reports to look out for beside the US CPI is US existing home sales. Tomorrow’s docket includes US mortgage applications.

 

by Steven Cochran

Gainesville Coins Portfolio Tracker and Financial News