Wall St opened in positive territory this morning, but immediately dropped into the red. Global stocks (with the exception of the Nikkei) are also in negative territory, with the Hang Seng losing 485 points, almost 2%.
The dollar is trying to get into positive territory this morning, but hasn’t managed to do so yet.
The markets are all in a tizzy over the San Francisco Fed’s report that investors do not realize how quickly the Fed is going to raise interest rates.
Precious metals are down this morning by about a half percent from Tuesday’s New York close, also feeling the fear of interest rate hikes. Higher rates actually having a negative effect on gold will depend on if the Fed rate hikes keep up with inflation (something many analysts think will not happen.) As long as interest rates are below inflation, gold does not incur an opportunity cost to hold.
Yesterday in the Markets
The Federal Reserve ruined Apple’s big party yesterday afternoon, when the San Francisco Fed released a report stating that the market did not realize how soon the Few would begin raising interest rates. Apple stock, which had been trading up to 4.8% above the opening price, plunged over 2% into the red before recovering to end the day down 0.4%.
Stocks were down, bonds were down, oil was down. The 10-year T-note yield hit a one-month high, and all ten sectors of the S&P 500 fell in the largest one-day drop in a month.
Gold and silver recovered in late trading to New York, to close barely into positive territory, while platinum lost $10 and palladium lost $25 an ounce. Palladium had made repeated runs at the $900 mark all summer, only to slip back down to the $850-$860 area. Gold hit an intraday low of $1,246 before recovering to close at $1,255.80.
The M2 money supply report from China, which was supposed to be released Tuesday night New York time, was leaked early, showing that the money supply was less than expected. The yuan is basically the only other strong currency other than the dollar in recent trading, and a lower money supply strengthens its position.
Economic News Affecting Gold
Mortgage applications in the U.S. plunged to the lowest levels since December 2000, down 7.2% from the previous week. This could be taken as a sign that the housing recovery is concentrated in the luxury and retiree sectors, where homes are often paid for with cash. Petroleum reserves in the U.S. fell slightly, by 1 million barrels. Wholesale inventories only grew 0.1%, compared to an expected 0.5% gain.
The strong dollar is making gold more expensive everywhere in the world except the U.S. Since gold is traded in dollars, a strong dollar means it takes more of a foreign currency to buy gold.
Geopolitical News Affecting Gold
The spectre of Scottish independence possibly igniting separatist movements are spooking Europe, aside from the massive economic and financial disruption it will cause in the UK and EU. Extremist groups in the Basque regions of France and Spain have used bombings and assassinations in the past in an effort to break away, and fears are that Scotland splitting from the UK after 600 years will motivate them to resume their terror campaigns. The parliament of the Catalonia region of Spain has set an independence vote for November, which the government in Madrid has said it will ignore.
In addition to the “Basque problem” that it shares with Spain, France also has a long-standing independence movement in the Brittany region, which home to William of Normandy, who conquered England in 1066. The large Flanders region in Belgium wishes to regain its medieval independence, rather than stay joined with the French-speaking Walloon region, and of course Kurdistan in Turkey has become emboldened by the autonomy of their brothers across the border in northern Iraq.
In news possibly related to the Scottish independence vote, It was reported that net gold imports into the UK totaled 70 metric tons — the highest net monthly inflow since 2012. Could this be some buying by the Bank of England while prices are low, in case it has to split the national gold reserves with Scotland? The Scots may want to think carefully about pressing their case, as it is certain that they will have to take their share of the UK national debt with them as well as any gold they may get.
In Ukraine, the government in Kiev announced that Russian troops were pulling back ahead of possible economic sanctions by the EU, leaving the pro-Russian rebels in eastern Ukraine to hold recent gains made by the Red Army. President Poroshenko also promised to introduce a bill in Parliament to grant greater autonomy to the eastern provinces, but declared that Ukrainian territorial sovereignty must remain intact.
Thursday brings the Consumer Price index for Germany and France, which will be examined for evidence of further deflation in the EU. In the U.S., first-time jobless claims for last week, the U.S Treasury budget, and M2 money supply reports are on tap.