Precious metals are up slightly on bargain hunting, a day after the S&P 500 stock index closed above 2,000 for the first time. Wall St. opened barely above unchanged this morning, and promptly dipped into the red. This is probably profit-taking before the end of the month.
Gold saw a little bit more physical demand in Asia, and carried that strength into European trading. With European bond yields at record lows and economic fears growing, the opportunity cost for adding gold to an EU portfolio are very low.
Silver is showing more volatile trading in Asia and Europe than it is in the U.S., due to the thin markets. Platinum and palladium are up modestly, as recent softness has presented some buying opportunities. UBS notes that recent softness is the result of outflows from PGM ETFs, which had seen remarkable inflows earlier this year. This is likely profit-taking, since the fundamentals underpinning the market haven’t changed, and palladium has gained over 22% for the year.
Gold is being helped this morning by a softer dollar. The DXY dollar index is still above 82.5, however, holding on to much of the recent rally. This may just be some consolidation. Oil is still trading in a tight range, despite the increase in fighting around the oil ports of Libya, a major exporter to Europe.
Yesterday in the Markets
The big news in financial markets yesterday was the S&P 500 finally closing above the 2,000 mark. Sentiment in equities was helped by durable goods orders and consumer sentiment coming in higher than expected.
Yesterday, spot gold closed at $1280, up $5. Spot silver closed unchanged at $19.27, while platinum lost $4 and palladium lost $6, to close at $1,408 and $882, respectively.
Economic News Affecting Gold
Bond yields in the Eurozone hit record lows as more investors pile into bonds. This is leading to more purchases of U.S. Treasury notes, as the yield spread is the highest in seven years. The yield on the 10-year T-note is equal to, or higher than, that of distressed economies like Italy or Spain. When the yield on a French 10-year bond is fully 1% lower than an American bond, you have to stop and wonder. U.S. bond yields are higher, because the Fed is expected to start raising interest rates next summer, while the ECB is expected to not only keep rates near zero, but start an outright quantitative easing policy.
Even though U.S. bond yields are higher than Europe, they are still below historical levels. The real interest rate (bond yields minus inflation) are still negative when adding food and fuel, which means that even in the U.S., the opportunity cost of gold is nil.
Part of the easing of the dollar today is from remarks by the Finance Minister of Germany. He told reporters that investors were reading more into the remarks of ECB president Mario Draghi than was actually said. This caused the euro to rise for the first time in four days.
Geopolitical News Affecting Gold
The open-ended ceasefire between Israel and Hamas is holding, even though Israeli prime minister Netanyahu is coming under fire from right-wing politicians for ending the offensive in Gaza. Talks between Russian president Putin and Ukrainian president Poroshenko went about as well as could be expected, even though Russia is apparently letting Ukrainian rebels travel through Russian territory to open a second front on the Sea of Azov in an attempt to ease Ukrainian Army pressure on the last two rebel-held cities of Donetsk and Luhansk. (See yesterday’s update for a map of the region.)
The U.S. has promised not to act unilaterally in attacking ISIS territory in Syria, in an effort to avoid international blowback. ISIS is threatening attacks on American targets around the world in retaliation for U.S. airstrikes on ISIS armor and artillery that broke up an attack on the capital of Iraqi Kurdistan.
We have a fairly big day tomorrow as far as economic reports. In the U.S., we have GDP for the second quarter, first-time jobless claims, pending home sales, and corporate profits. In Europe, we have German Consumer Price Index and unemployment reports, as well as EU economic sentiment. We will continue to see very light volumes in all market classes until after next week, as traders squeeze in a last summer vacation.
The autumn festival season is beginning in India, so gold demand will rise despite government curbs on gold imports. This, of course, means even more smuggling! The new government has not eased import restrictions as expected, and rampant gold smuggling continues to increase. Even the police are succumbing to the lure of big money, by either cooperating with smugglers, or “liberating” seized gold from the evidence rooms.