Gold Rebounds on Chicago PMI Miss: Morning Market Update Sept 30

September 30th, 2014 by

After slipping below $1,210, gold rebounded this morning on the release of the Chicago PMI, which came in at 60.5, far below expectations of 64.3. We are entering a period of “bad news is good news” for gold, as continually poor economic data from Europe is applying some upward pressure on the metal.

The dollar also jumped above 86 on the DXY index in response to the euro dropping to a two-year low. The euro is currently trading at just under $1.26 relative to the dollar.

Yesterday in the Markets

Stocks in emerging markets were pulled down by the political unrest in Hong Kong, as Brazilian stocks dropped -4.5% and the bear market continued for Russian stocks, which gave up -2.6%. The demonstrations also drove safe haven buying of U.S. Treasuries, as the yield on the 10-year note dropped 5 basis points to 2.48%.

All of the major U.S. stock indices were marginally in the red on Monday’s close:

Dow Jones: 17,071.22 (-41.93) -0.25%
S&P 500: 1,977.80 (-5.05) -0.25%
Nasdaq: 4,505.85 (-6.34) -0.14%

Precious metals prices at Monday’s close:

Gold: $1,215.00 (-$4.40) -0.36%
Silver: $17.46 (-$0.20) -1.13%
Platinum: $1,299.00 (+$2.00) +0.15%
Palladium: $786 (+$14.00) +1.81%

Economic News Affecting Gold

Growth in home prices for July came in below expectations, as the Case-Shiller Price Index rose 6.7% compared to predictions of 7.5%. When seasonally adjusted, U.S. home prices actually dropped 0.5% from the month previous.

Britain has also been feeling the effects of weakness in the European economy, as the Eurozone Consumer Price Index came in at just 0.3%, indicating a slowing rate of inflation. The U.K. saw just 0.9% growth in GDP in the second quarter, and housing prices fell for the first time in 17 months.

Euro stocks were up as the ECB prepares to begin quantitative easing. The euro is down 10% since May on the expectations of QE; the central bank has already cut interest rates twice in the past four months. The markets will now wait and watch to see whether the Fed or the ECB will be the first to raise rates, with gold the likely beneficiary in the meantime.

In Japan, the Nikkei 225 reached a one-week low, but remains up 4.8% in September, the best month the index has posted since last November. Elsewhere in Asia, the pro-democracy demonstrations in Hong Kong may put a damper on this week’s holidays in China, which typically boost commercial activity in Hong Kong as the rest of the country is off from work. The uncertainty surrounding the protests coincided with a 296-point drop in the Hang Seng, a loss of about -1.28%.

Geopolitical News Affecting Gold

The Hong Kong demonstrations will continue to be the biggest story in the geopolitical sphere. Although few expect China to suddenly hold fully open democratic elections in response to the protests, which are largely comprised of students, the development has the potential to adversely affect the world’s second largest economy. Beijing’s handling of the peaceful demonstrations in Hong Kong will be telling. These are the largest demonstrations in the country since the Tiananmen Square incident in 1989, an event from which the final death toll may never be known for certain.

China’s southern neighbor, Russia, is considering imposing stricter capital controls as the economy continues to tank and billions of dollars of investment leave the country. Net outflows from Russia are estimated to total $100 billion thus far this year. The ruble has remained weak, prompting the Russian Central Bank to consider market interventions to protect the worst performing currency of the third quarter.

Sales Strong From U.S. Mint

Graphic courtesy of GoldSeek

Graphic courtesy of GoldSeek

September was a robust month for sales of gold and silver bullion coins from the U.S. Mint. American Gold Eagles topped 55,000 oz for the month, the best monthly showing since January and more than double the sales in August. Meanwhile, American Silver Eagles were also snatched up by investors to the tune of 3,375,000 oz sold, the most since May. No doubt these increased sales were related to the slump in precious metals prices.

Looking Ahead

After the release of the Chicago PMI and Case-Shiller HPI stifled the markets this morning, tomorrow will see the latest PMI and ISM manufacturing indices. As far as geopolitics are concerned, despite important developments in the EU and Russia, all eyes will be trained on the outcome of this week’s student demonstrations in Hong Kong.

 

by Steven Cochran

Gainesville Coins Portfolio Tracker and Financial News