UPDATE: China announces economic stimulus; stocks, oil, gold jump, dollar drops.
The Peoples Bank of China has extended a 500 billion 元 ($81 billion) standing loan pool to the nation’s five largest banks. Direct investment in the Chinese economy has dropped to four-year lows, and this loan pool is intended to spark more investment.
Gold was up over nearly $10 an ounce on the news, before easing slightly, and Wall St. pulled into positive territory.
Traders are moving to neutral positions ahead of the conclusion of the Federal Reserve Open Market Committee (FOMC) meeting tomorrow.
Gold saw increased physical demand in Asia last night due to the price dip, but both silver and gold eased to unchanged in morning trading in New York.
The dollar is trending just under yesterday’s close, while the Russian ruble hit a fresh all-time low against the greenback. The dollar is flat against the euro, but gained slightly on the yen and yuan, with the dollar buying 107 yen in Tokyo. European stocks are down over Fed trepidation and worries over the Scottish vote on Thursday. U.S. stocks opened lower, but rose to unchanged, The Dow and NASDAQ have both sunk back into negative territory, while the S&P 500 is up less than 2 points.
Yesterday in the Markets
Spot gold closed up $4.40 on Monday, with silver up 4 cents. Platinum lost ground slightly, down $5, while palladium eked out a gain of $1. The Dow closed up 43 points, 0.26%, while the S&P 500 slipped a point and a half and the NASDAQ dropped 1.07% to a one-month low and its worst day since July. The 10-year Treasury note had its first positive close in eight sessions, snapping its longest drop in over a year. The yields on the 10-year T-note dropped to 2.59%
Economic News Affecting Gold
Fed, Fed, Fed. Want to scare a stockbroker this Halloween? Get a Janet Yellen mask. Global markets are petrified that the Fed is going to raise rates soon, and the Fed officials themselves are wrestling with the questions of not only when to raise rates, but how to warn the markets without traders going into hysterics.
The U.S. Producer Price Index was flat for August, compared to a 0.3% rise in July. The reduction in inflationary pressures were mostly due to plummeting gasoline prices. Producer prices were up 1.8% year-to-year, which is about where the Fed wants retail inflation. Traders are holding their collective breath, hoping this news stays Yellen’s hand from ending the Fed’s zero interest rate policy (ZIRP.)
India reports that gold imports in July were the highest in 12 months, despite no reduction in the 10% import tax. So much for the recent headlines proclaiming that India had lost it love for gold.
On the supply side, the government of Zimbabwe is cutting export royalties on gold mining to 5%, down from 7%. The measure is to help the nation’s small gold mining sector, which has been hit by higher labor costs and power outages, in addition to low market prices for gold. National gold production in Zimbabwe was down by 26% in the first half of 2014, to only six metric tons. Gold is the #2 export for the country, behind platinum.
In other supply-side news, the toll extracted on the South African economy by the five-month long mineworkers strike in the platinum industry is being felt. Not only did PGM production fall 45.2%, gold production fell 14.6%, diamond production fell 10%, and copper production fell 15.9%
Dubai is launching a 1 kilo gold contract in November, in an attempt to grow its importance in the international gold market. The contract will be able to be settled in cash as well, like on the COMEX.
The British government has announced that it will sell government bonds denominated in yuan (renminbi.) This makes the UK the first non-Asian nation to offer bonds denominated in Chinese currency. Officials say that the renminbi is the “next global reserve currency,” and want to be at the forefront of the international exchange market for the currency.
Bloomberg reports that another analyst believes that the Chinese government may be boosting gold reserves, to offset the stronger dollar and lower gold prices that have altered the allocation percentages of its foreign reserves.
Geopolitical News Affecting Gold
The Telegraph reports a “dramatic increase” in the amount of physical gold being purchased in Scotland ahead of the independence vote. One of the many major hurdles to establishing a Scottish state will be what currency the new nation will use. Britain has ruled out letting them use the pound, and they will have to apply for EU membership and be accepted before they can use the euro.
The Ukrainian parliament worked yesterday to balance its relations with both Russia and the EU, by ratifying the EU trade agreement that former president Yanukovich nullified, leading to riots that forced him to flee the country. At the same time, the parliament in Kiev drafted a bill to give the three provinces in Eastern Ukraine that have been the sites of a Russian-sponsored rebellion “special status,” and grants amnesty to rebels.
NATO has 1,300 troops in western Ukraine near the Polish border, conducting training exercises that were scheduled before the fall of the Yanukovich government. The troops are not issued with live ammo during this exercise, but Putin is certain to still be unhappy.
The terrorist organization ISIS is reported to have used U.S.-made antiaircraft weapons captured from the Iraqi Army to down a Syrian Air Force fighter jet — a reminder that any airstrikes by the West on ISIS-held towns in their base of eastern Syria will not be done with impunity.
Tomorrow will feature the policy statement from the FOMC, followed by a press conference by Janet Yellen. Reporters and traders will be intently watching for any missteps or statements that would tip the Fed’s hand regarding the timeline for rate hikes.
Additional economic news will be the UK labor report and monetary policy committee meeting minutes from the Bank of England. The U.S., will release mortgage applications and the consumer price index.