Gold and silver are near unchanged from yesterday’s New York close, gaining marginally in Europe after a slight softening in Asia. Platinum is up slightly, while palladium is continuing a modest overnight rally.
A strong dollar rally the last couple of days are keeping a lid on gold’s positive correction today, but it is still gaining, despite that headwind. The greenback momentarily broke the 81 level on the DXY dollar index for the first time since early February this morning. The dollar is being helped by the skittish mood in the EU, as the markets ponder if their leaders actually do have the courage to enact meaningful sanctions. The EU economy is at the tipping point, one way or the other, and doing the right thing morally could throw Europe back into recession.
This was reflected in the drop today of the Ifo index of German business sentiment, which weakened the euro.
Yesterday’s Precious Metals Action
Precious metals were hit with heavy selling pressure mid-morning in New York yesterday, as short-term speculators found the bulls unwilling to counter sell orders. This led to a large number of short positions being established, driving gold to a one-month low. Keep in mind that each correction in 2014 has halted at progressively higher lows as the price grinds higher, and the lows established in last year’s smackdown by the big banks have not been breached to the downside. With so much gold leaving the ETFs last year, there is now little physical gold left in the West to back up paper-based manipulation using futures contracts.
While the headlines may read “S&P 500 hits new record high!”, the reality is that the index gained less than one point yesterday, and has been choppy and flat for a month. Much like the stories proclaiming “Chinese gold demand is down from last year, so gold is doomed,” it’s spin designed to get people to click the headlines. Measuring by weight, gold demand for the first quarter of 2013 and 2014 is almost exactly equal, and comparing gold sales in the second quarter of 2014 with the second quarter of 2013 is extremely misleading. Due to the price smashes in April and June of last year, gold sales reached multi-decade highs in 2013.
U.S. durable goods sales for June reversed the declines seen in May (which was revised downward even more.) While looking good on the surface, the report notes that inventories hit another high. Inventories have grown 14 of the last 15 months, meaning that businesses have been building more heavy goods than they can sell for over a year now.
European stocks are down over sanction jitters and the afore-mentioned Ifo report, and Wall St is down over bad earnings from Amazon and Visa. Asian stocks were solidly in the green, as the Nikkei hit a six-month high and Hong Kong’s Hang Seng hit a three-year high. Shanghai was up over 1%. This was partly on the good run US stocks had yesterday, and partly on the relaxation of banking restrictions in China. Beijing has approved the first three totally privately-owned banks in the nation since the Communists came to power in 1948.
The U.S. is accusing Russia of allowing pro-Russian rebels from eastern Ukraine to operate from the Russian side of the border to avoid Ukranian airstrikes, while they use artillery to shell Ukrainian army positions. No public evidence has been released, however.
Israel continues its offensive into Gaza, rooting out rocket factories and engaging Hamas militants. The strain of fighting in close quarters, and the inevitable civilian deaths that occur, has both sides, talking about a ceasefire, but neither is willing to do so except on their terms. The UN is outraged that Hamas is using tunnels under UN schools in Gaza to hide rockets, which has turned the schools from shelters to targets.
It’s a big week next week for the markets. Monday is options expiry on August gold contracts. The Federal Reserve Open Market Committee meets Tuesday and Wednesday. Wednesday morning, U.S. GDP figures are released. Friday is U.S. non-farm payrolls and consumer spending.
We’re almost out of the summer doldrums. By this time next month, summer vacations will be over in the U.S. and Europe, and India will be gearing up for the fall wedding and festival season. Even though the Indian government is keeping gold import restrictions up, smuggling is rising even higher than before. This means all that gold is still being bought, it just isn’t showing up on the government’s trade deficit report.