Gold spiked early in trading this morning on the release of poor economic data that indicates the global economic slowdown is deepening. The dollar dropped sharply, as the DXY index slid 73.5 basis points to 85.087, its lowest reading in two weeks.
Both crude oil prices and Treasury yields have continued to fall. Meantime, the news that a second nurse in Texas has been infected with the Ebola virus sent the markets into a bit of a panic, as the Dow tumbled nearly 200 points. It seems reasonable to assume that worsening sentiment about the government’s ability to contain the virus could result in less travel and less economic activity as consumers fear the prospect of a far-reaching outbreak.
Yesterday in the Markets
As of Tuesday’s close, precious metals bounced back while stocks briefly stabilized before Wednesday’s nosedive.
Dow Jones: 16,315.19 (-0.04%)
S&P 500: 1,877.70 (+0.16%)
Nasdaq: 4,227.171 (+0.32%)
Economic News Affecting Gold
U.S. retail sales came in lower than expected for September, falling 0.3% instead of the expected decline of 0.1%. This follows a healthy 0.6% gain in retail sales in August. Gold popped as high as $1,250 on the report before a bit of profit-taking occurred.
With the bear market in oil, energy prices dropped 0.7% last month, as we may see WTI crude cross below $80 by the end of trading today. Both benchmark oil prices have been in a free fall, repeatedly passing below four-year lows.
The U.S. PPI (Producer Price Index) dropped 0.1% last month after being flat during August. This represents the first drop in PPI in over a year, signaling a potential trend reversal. Meanwhile, the Empire State Manufacturing Index came in woefully below what analysts had predicted; after posting a 27.5 the month previous, the index was expected to be around 20.3, and instead was reported to be a dismal 6.2, or a drop of over 77%. This index gives a gauge of business conditions in the New York/New England region.
Europe fared no better, as inflation has stalled in the U.K. and the Bank of England shows no signs of raising interest rates anytime soon. With growth sputtering and prices falling, Eurozone economies are trying desperately to stoke inflation. Investors have piled into treasuries instead, as the German 10-year bond yield has crept below 0.8%. The jump in gold coincided with similar investor flight to government bonds in the U.S., as the yield on 10-year notes plummeted all the way down to 2.02% on Wednesday morning.
Geopolitical News Affecting Gold
A second American infected with Ebola has been confirmed by the Dallas hospital where victims of the virus are being treated. Once again, one of the hospital workers has contracted the virus after exposure to an infected patient. The lack of proper procedural oversight at the Dallas hospital notwithstanding, this has seriously raised concerns about the potential spread of the virus within the U.S.
After the Centers for Disease Control (CDC) stated weeks ago that nobody ought to worry about Ebola becoming an epidemic in the States, authorities must now admit that there is a very real possibility of there being more cases. Symptoms of the virus don’t manifest for many days, sometimes weeks, after it has been contracted, making it difficult to know just how many cases may be out there. With the threat of Ebola sure to dampen international travel and economic activity generally, it would appear that those in the prepping community are likely the best suited to ride out this Ebola scare away from big urban centers.
In other news, Canadian mining juggernaut GoldCorp made headlines when its CEO Chuck Jeannes remarked that we may see a peak in global gold production next year before output begins to perpetually decline. His comments came at a meeting of Australian gold mining executives in Melbourne discussing the near-term outlook for the industry. This “peak gold” event in mining production is expected to be a result of cutbacks in exploration in tandem with a dearth of new significant discoveries. With China leading the way as the world’s largest consumer and producer of the yellow metal, “peak gold” would likely trigger a steady rise in gold prices as output declines.
Without any strong leadership providing accurate information on what to expect from the Ebola scare, and no solid consensus on how it may be contained, a great deal of attention will be paid to the slow drip of news and information regarding Ebola over the coming days and weeks.