With a slew of positive economic indicators being released this week, the dollar reached a 4-year high overnight as the DXY index broke 85. The index touched above 85.4 early in Thursday’s trading before easing back to 85.25, up 0.25%. A robust dollar is largely carrying the day in the markets, keeping both commodity prices and demand for treasury notes lower.
The euro sits at a 22-month low, as well as a 2-year low against the dollar. Meanwhile, the yen gained 0.53% vs. the dollar Thursday morning.
Yesterday in the Markets
As confidence in the U.S. economy has been gaining steam, the precious metals have continued to slide. Gold approached a 9-month low, and will likely retest the $1,200 level. Silver remains well below $18/oz, although some interesting trends in silver stocks may change that: Tuesday saw an inflow of more than 2 million troy oz into the Comex silver ETF (SLV), while inventories of silver stocks on the Shanghai Futures Exchange are nearly depleted, a trend that goes back over a year. Since reaching their high mark of over 1,143 tonnes in March 2013, the silver stocks have seen a 90% decline on the Chinese exchange.
Precious metal prices at Wednesday’s close:
Gold: $1,216.60 (-$6.30) -0.52%
Silver: $17.68 (-$0.11) -0.59%
Platinum: 1,312.00 (-$12.00) -0.91%
Palladium: $814.00 (+$2.00) +0.25%
Following three days of losses, U.S. stocks gained on mostly favorable economic data as investors predictably bought on the dips in an overheated stock market. In the meantime, European stocks saw modest gains following ECB President Mario Draghi’s reaffirmation that the central bank will do “whatever it takes” to stoke growth and inflation.
Stocks and oil saw moderate gains by the closing bell on Wednesday:
Dow Jones: 17,210.6 (+154.19) +0.90%
S&P 500: 1,998.3 (+15.53) +0.78%
Nasdaq: 4,555.22 (+46.53) +1.03%
WTI Crude: $92.88 (+$1.32) +1.44%
Brent Crude: $97.06 (+$0.21) +0.22%
After falling each of the five days previous, the 10-year Treasury note yield rose 3 basis points to 2.56%. There was fairly poor demand for the $35 billion of 5-year T-notes sold yesterday, as investors seem to prefer to wait until interest rates rise to buy Treasuries and government bonds.
Geopolitical News Affecting Gold
The U.S.-led coalition conducted additional airstrikes on Iraq overnight. The initiative to root out ISIS has the support of at least 104 different nations, as indicated at yesterday’s special meeting of the United Nations General Assembly, perhaps keeping safe haven fears over the conflict under wraps for the moment.
In China, a government watchdog revealed that some $10 billion in fraudulent trade has occurred within the country. The 6-month investigation revealed that many import and export numbers were falsified, allowing billions in illicit funds to be diverted into the shadow economy. With the expectation of an impending regulatory crackdown on the news, the yuan and the industrial metals (one of China’s largest exports) fell, while the Hang Seng Index also slid.
Yesterday’s sale of Russian bonds finally went through following 9 straight weeks of cancellations. The ruble gained following the sale, helped by the de-escalation by both sides in the Ukraine conflict.
Additionally, Russia’s central bank added 232,510 troy oz (over 7 tonnes) of gold to its reserves in August, bringing the total to 1,112.5 tonnes of the yellow metal. The Russians were not alone in this endeavor, as their neighbors in Kazakhstan (+24.7 tonnes), Azerbaijan, and Ukraine all made deposits to gold reserves. The Turkish central bank also added 3 tonnes of gold to its reserves, bringing its total to 511.6 tonnes–the 12th highest gold reserves in the world, according to the IMF. These net gold buyers appear to be strategically hedging against the upheaval and uncertainty in the regions surrounding the Levant and the Black Sea.
Economic News Affecting Gold
New home sales jumped 18% in August, reaching a 5-year high. Taken in tandem with a 14-year low for first-time jobless claims, all indications point to a quickening pace for economic growth in the U.S.
Durable goods orders in the U.S. fell by 18.2% in August, however, somewhat dampening dovish activity in the markets. This followed a staggering 22.5% increase in durable goods orders for July; both volatile swings represent record changes, but each are skewed by orders for commercial aircraft, which were abnormally high in July before falling back to earth in August. At the same time, capitals goods orders (a measurement of corporate investment) climbed higher than expected in August. Low jobless claims and greater investment in business equipment are good indicators that U.S. firms expect greater economic growth in the fourth quarter.
In policy news, Dallas Federal Reserve President Richard Fisher observed that the Fed’s hyper-accommodative stimulus and monetary policies have generated potential bubbles, especially in the junk bond market, due to a growing lack of risk aversion among equities investors. Similarly, Euro stocks rose on Draghi’s assertion that the ECB will do “whatever it takes” to kickstart the economy. Fisher predicted that the markets will continue to “test” the Fed and the ECB on these easy-money policies as they seek out higher and higher yields with less aversion to risk.
Thursday marks the options expiry for gold and silver on the Comex, as investors must close out or rollover their positions on the metals. The consumer sentiment index and GDP growth data will both be released on Friday morning.