ECB Starts QE: Morning Market Update Sept 4

September 4th, 2014 by

It’s Raining Euros!

Gold saw slight physical buying in Asia overnight, and a small spike in early New York trading as news hit the wires of Russian artillery attacks on the Ukrainian seacoast town of Mariupol, putting paid to yesterday’s talk of a ceasefire.

Silver and platinum have returned to the unbelievably tight range that they’ve shown in U.S. trading this week, while palladium is seeing a technical rebound after Tuesday’s slump.

European and U.S. stocks are higher on news that the European Central Bank has not only cut interest rates to as close to zero as you can get, but is also rolling out outright securities purchases (quantitative easing.) The euro fell to a 14-month low against the dollar on the news, sending the DXY dollar index well over 83.25.

Yesterday in the Markets

Gold built slightly on the support level of $1,265 yesterday, closing at $1,269. Silver was down 6 cents, while platinum was nearly flat, gaining $4. Palladium eased by $8 after the markets thought a ceasefire in Ukraine had been agreed to.

Economic News Affecting Gold

European_central_bank_euro_frankfurt_germanyThe big news this morning is the European Central Bank announcing the start of outright securities purchases. Call it “quantitative easing,” “money printing,” whatever, but coming so soon after the institution of negative interest rates on the excess deposits banks hold at the ECB, the announcement shows just how dire the situation in the EU is.

The ECB also cut its benchmark rates by 10 basis points (0.10%.) This puts its main refinancing rate at 0.05%, and its emergency lending rate at 0.30%. Banks that wish to park excess funds at the ECB will now pay 0.20%, instead of earning interest. This “negative interest rate” policy (NIRP) is a move to prod banks into lending money to jumpstart the economy, instead of sitting on it and earning interest from the ECB. In contrast, the Fed pays big banks 0.25% interest on excess funds deposited there.

The dollar jumped as the euro tanked on news of ECB QE, but had barely any affect on gold. European and U.S. stocks met the news of the “free money” party moving from the U.S. to ECB headquarters in Frankfurt enthusiastically.

The Bank of Japan in its meeting today continued its policy of extreme QE, leading stocks to take profits after a strong three-day rally. Hong Kong and Shanghai stocks also closed in the red.

In the U.S., the ADP private sector payroll report showed that 204,000 jobs were created last month, less than the expected 220,000. First-time unemployment applications for last week showed that 4,000 more people got their pink slip than in the previous week, with a total of 302,000 people applying for jobless benefits for the first time.

old-gold-mine-cartsReuters has an article on how gold mining companies may be setting themselves up for a fall, long-term, by focusing on short-term profits. Miners have been pressed by falling gold prices, but cutting exploration when most of the good gold veins have already been harvested may lead to an insurmountable crisis in the future. The average quality of gold ore is half what it was in 2000. Mining companies have to dig out nearly 21 metric TONS of rock to get just ONE ounce of gold, leading to extremely higher costs than ten years ago.

Geopolitical News Affecting Gold

 The Ukrainian town of Mariupol, on the coast of the Sea of Azov, is coming under artillery bombardment today, despite talks of a ceasefire yesterday. NATO and U.S. sources say that the rebels, who used Russian territory to sneak past the Ukrainian Army to start the new offensive, are being backed by Russian Army self-propelled artillery units and better tanks than the Ukrainians (or the rebels themselves) possess.

At the current NATO summit, the U.S. and Britain are pressuring the other members to step up and actually spend the 2% on defense that the NATO treaty requires, instead of letting the U.S. pay for everything.

ISIS/Islamic State is running down their list, making sure that they threaten everyone in the world with death. Yesterday, it was unsubstantiated reports of direct threats to Russia, and today, it’s rumors of threats to “cleanse” Lebanon of its decadent (in their eyes) ways.

Looking Ahead

looking-ahead┬áThe economic calendar for Friday brings us U.S. non-farm payrolls, which, unlike today’s ADP report, count public-sector (i.e. government) jobs. Since Federal, state, and local governments have been cutting jobs, this number is sometimes smaller than the ADP report. The NFP is important because the Fed uses it as a gauge of when to raise interest rates.

Also on the docket is EU GDP, and German industrial output.


by Steven Cochran

Gainesville Coins Portfolio Tracker and Financial News