Wall St. opened sharply lower on heavy volume this morning, following European stocks downward amid concerns that pro-democracy protests in Hong Kong could turn violent. Thousands have assembled in the streets of Hong Kong since Friday, despite riot police using tear gas in an attempt to disperse the crowds.
Hong Kong is a major financial and trading hub for Asia and China, which adds to the apprehension felt by the international markets over the protests. Many trading centers and banks have closed as a safety measure.
The Hang Seng stock index in Hong Kong lost nearly 450 points Monday, dropping 1/9%. European stocks declined as well. Chinese markets are closed all week for a holiday, which will lower any Asian safe haven demand for gold.
Upward revision of second quarter GDP put a spring in Wall Street’s step after being pummeled on Thursday. The Nasdaq rose on the strength of big biotech stocks, and bargain-hunting by investors followed a drop in Treasury yields.
Gold saw short-covering early in New York, but gave up gains in late morning trading. Silver is modestly lower, while the platinum group metals are steady. The dollar has seen modest profit taking after hitting fresh six-year highs against the yen, and fresh 22-month highs against the euro. The euro has dropped below $1.27, and the yen is trading above 109 to the dollar.
Yesterday in the Markets
Stocks got a reprieve on Friday, as bargain hunters step in after the markets were thoroughly thrashed on Thursday. Second quarter GDP being revised from 4.2% to 4.6% added fuel to the fire, as the Dow closed up .99%, the S&P 500 closed up .86% and the Nasdaq finished up 1.02%. This helped cut weekly losses for the major indices, which were all down between 1% and 1.5% for the week.
Gold closed slightly up on Friday, rising $2.50, but platinum dropped to a 15-month low, shedding $12 to drop below the $1,300 threshold, and palladium was hit with a 3% drop, losing $25 on the day. Silver was the only precious metal to make gains, adding about 1% to close at $17.66. The DXY dollar spot index rose 0.50%, remaining firm above 85.6.
Spot gold in India saw its second-largest one day gain of the year on Friday, despite record tonnage of gold being successfully smuggled into the country. With the fall festival season approaching–the traditionally auspicious time to purchase gold in India–we may see the East have a slightly stronger pull on demand in the coming weeks.
Economic News Affecting Gold
Headlines abounded on Friday that Wall Street’s “bond king” Bill Gross was quitting Pimco, a leading global investment management firm, after 16 consecutive months in which money was pulled out of his fund. The Wall Street Journal reported that roughly $10 billion was withdrawn from the company follow the departure of Gross, who also co-founded the company. Bond yields dropped in reaction, with the 10-year note sitting at 2.53%.
U.S. consumer spending rose 0.5% in August, while the EU economic sentiment indicator dropped in September, slipping 0.7 points to 99.9. Both the Eurozone and the broader EU saw weaker consumer confidence based on these measures. The ruble has dropped to record lows, approaching the cut-off point where the Russian Central Bank has stated it will take action. The government last intervened in May, buying rubles to offset the tremendous outflow of investment following the annexation of Crimea. The ruble continues to be the worst performing currency in the third quarter.
Geopolitical News Affecting Gold
Mining giant Amplats (Anglo-American Platinum) continues its quest to unload its four platinum mines in the Rustenburg region of South Africa. The company has come under heat for a series of difficulties this year, including its handling of a massive miner’s strike that lasted over 5 months. As a result, the AMCU (Association of Mineworkers and Construction Union) and NUM (National Union of Mineworkers) have been fighting over control of the industry; the AMCU has extended its reach in the gold mining sector by cutting into NUM’s share of worker membership at Sibanye Gold’s Beatrix mine. To make matters worse, Amplats’ financial director, Bongani Nqwababa, resigned from the company on Monday.
Meanwhile, the pro-democracy protests in Hong Kong seem remarkably well-planned, with food, water, first-aid supplies and water pre-positioned. Tens of thousands of protesters are participating, many of them students, in what has developed into a four-day demonstration. All of China will be on vacation this week to celebrate National Day holidays, and the protests have dampened tourism. Beijing has expressed zero tolerance for any international intereference in the uprisings, which could hurt market confidence in the capitalist hotbed of Hong Kong.
Beginning Monday, direct yuan/euro Forex trading will take place in the Chinese currency market. The tenor of the demonstrations in Hong Kong, as well as the government’s tone toward them, will be something to watch going forward.