The U.S. dollar continues to rally, exerting its influence on markets from bonds to coal. The greenback is building on yesterday’s 14-month high, while Japan’s QE program weakens the yen to a six-YEAR low against the dollar. The Chinese yuan hit a six-month high as the nation’s trade surplus grew more than expected.
The pound Sterling is at a ten-month low, mostly of fears of major economic disruptions if Scotland actually votes to secede from the United Kingdom. Scotland and England have been linked together since the extinction of the Tudor dynasty in 1603 led King James of Scotland to be named to the English throne as well.
Gold is steady after dropping nearly $13 yesterday in New York, Silver and palladium mostly unchanged as well. Platinum is seeing some slight selling pressure this morning, but is only down $4.
Yesterday in the Markets
The surge in the dollar finally managed to nudge precious metals into some automated sell stops, with spot gold losing $12.90. Silver was down 17 cents, platinum down $7.00 and palladium eased by $4.00. The strong dollar also pulled down crude oil prices, and the prices of almost all raw commodities.
European stocks were down upon the news that 51% of Scots responded “yes” when asked if they would vote for Scottish independence. Hardest hit were UK stocks, though many companies with exposure to Scotland and/or the UK were hurt as well. In New York, the Dow and S&P 500 spent the entire day in the red, while the NASDAQ started positive, was drug into negative territory in the afternoon, but managed to get its head above water before the close.
Economic News Affecting Gold
The two big stories in the markets today are “will Scotland secede” and just how far can the dollar go? Scottish officials want to keep the UK pound as their currency, something that London has flat ruled out. Scotland can’t immediately join the EU or use the euro as their currency, either.
Another question is, how (or will) the national gold reserves of the UK be split with Scotland? If the Bank of England suddenly has to hit the open market to replaced leased/sold gold, the weakness in the pound will mean gold will be more expensive for them.
While the strong dollar is great for importing goods, or buying commodities, it is bound to do a number on the U.S. trade deficit. American exports are more expensive with a stronger dollar. With the euro and the yen both depreciating rapidly, American exporters are put at a disadvantage.
Russia and China are getting around using the strong dollar by inking more agreements to trade directly in rubles and yuan. China is a large customer for Russia raw material exports.
Another bank manipulation scandal has broken, with the U.S. Commodity Futures Trading Commission recommending that the Justice Department start criminal investigations of at least a dozen banks. The banks colluded to rig the rates on interest rate derivatives, known as the ISDA fix. The manipulation resulted in billions of illegal profits for the banks, and billions in losses to companies and pension funds.
The Perth Mint announced yesterday that silver sales in August were the strongest in seven months. Those numbers should increase in September, with the introduction of the 2015 Lunar Goat gold and silver coins, and the 25th anniversary 2015 silver Kookaburra.
In South Africa, the world’s largest platinum mine remains closed today as the entire mine is inspected. The mandatory shutdown is a result of the second death in as many months at the mine.
China and Germany posted a larger than expected trade surplus, while Japan saw its current account surplus shrink.
Geopolitical News Affecting Gold
The EU has delayed any sanctions against Russia over its open invasion of eastern Ukraine, looking for a way out of backing up their threats to punish Putin for further aggression. Both Ukraine and Russia are pretending that the ceasefire is working, as Russian-backed troops continue to shell an important port city in southeast Ukraine.
Obama continues attempts to get more nations on board his plan to combat the terrorist army of ISIS/Islamic State. The terrorists in turn, simply use footage of U.S. airstrikes to paint themselves as the victims in order to gain more recruits. One worrying aspect of ISIS recruitment is the numbers of European and American citizens joining their ranks.
No major economic news is planned for Wednesday. The U.S. will see mortgage applications and petroleum reserves, while Wednesday night (Thursday morning Beijing time) will be China producer price index.