Data showed that new home sales in the U.S. for August spiked 18%, helping to stop the bleeding in the stock market. This also helped strengthen the dollar, which was largely unchanged after being hit by profit-taking. This surprisingly favorable housing report added some much-needed optimism to an economic landscape dominated by growing equity bubbles and signs of continued weakness abroad, particularly from the European and Asian economies.
Yesterday in the Markets
Stocks were down at Tuesday’s close as the markets gave back some of the last few week’s gains. The S&P 500 dropped about 0.6% to 1,982.77 as it is expected to retest the 2,000 mark again this week. The Nasdaq lost 19 points for a drop of more than 0.4% before a slight recovery at Wednesday’s open. The Dow sank over 100 points, or nearly -0.7%, while the 10-year T-note saw some safe haven buying as the yield sat at 2.54%.
The precious metals reversed direction and saw modest price increases across the board. By Tuesday’s close:
Gold: $1,222.90 (+0.67%) +$8.10
Silver: $17.78 (+0.28%) +$0.05
Platinum: $1,324.00 (+0.23%) +$3.00
Palladium: $812.00 (+1.5%) +$12.00
Economic News Affecting Gold
Disappointing performance from across the European economic zone has created little safe haven demand for gold and precious metals, as investors choose instead to seek safe haven in the dollar and the yen. The yen rose modestly after Japanese Prime Minister Abe voiced concern about the currency being at a 6-year low.
The European Composite PMI sat a 9-month low on Tuesday, prompting much of the European markets to tank. Germany’s Ifo Business Climate Index came out below expectations, reading 104.7 compared to projections of 105.8. Europe’s two biggest economies, Germany and France, both showed slower growth than the two months previous, sending stocks into a modest tailspin. ECB President Draghi reiterated that the central bank will remain accommodative in its monetary policy for an extended amount of time, providing a slight lift for the euro.
The Russian Finance Ministry is slated to conduct a sale of government bonds for the first time in 10 weeks. This follows 9 consecutive weeks of cancelled bond sales. The Russian economy has been ravaged by Western sanctions, as both Russian stocks and the ruble have plummeted over the last two months. The Finance Ministry will be selling 10 billion rubles of bonds, due after ten years; for some perspective, these 10 billion rubles amount to just $259 million. The currency is expected to see a nice bump if the sale goes through, however. With serious concerns about both the Russian and European economies, it would appear to be in both party’s interest if the truce between Ukraine and Russia were to hold.
Geopolitical News Affecting Gold
Airstrikes against the terrorist insurgents ISIS are being actively facilitated by a growing coalition of nations, adding a bit of “risk-off” sentiment in the markets that helps buoy stocks while suppressing gold. Even the U.K. is considering lending its support. An overnight airstrike in Syria added to the four previous airstrikes against ISIS in Iraq. The Islamic State continues to control land straddling eastern Syria and northern Iraq, and has not been recognized as a legitimate regime by any major nations.
As the traditional festival season in India approaches, so too does the illegal smuggling of gold into the country. Despite an easing of restrictions on gold imports under the new Modi administration, India’s incoming gold supply (about 50 tonnes per month) is far outstripped by its projected gold demand (80 tonnes per month). Consequently, some 50 metric tonnes of gold was recently smuggled into India over a 10-day period. The upcoming festival season in late October also coincides with the customary Indian wedding season, another massive gold-buying event.
South Africa’s Trade and Industry Minister, Rob Davies, announced the formation of a new “platinum belt” special economic zone in the country’s most concentrated platinum-producing region. The government is trying to grow industries within the country that use platinum as an industrial input. This includes the production of catalytic converters for automobiles, as well as jewelry fabrication. By encouraging the growth of these platinum-based industries within the special economic zone, South Africa is hoping to capitalize on the value-added products which use platinum in addition to profiting from the mining of the metal. Although Russian and Chinese multinationals have assumed control over several large South African gold and platinum mines, the vast majority of the world’s platinum supply is mined on South African land.
Tomorrow morning, Comex options on gold and silver expire, which should lead to some volatile trade. Thursday will also see first-time jobless claims and U.S. durable goods orders reported.