Gold Above $1245 on Stock Weakness: Morning Market Update Oct 20

October 20th, 2014 by

Disappointing profits reports from technology giants SAP and IBM pulled European stocks and the Dow down after an upbeat Friday.

This led spot gold to push above the $1,245 mark, after a close barely below unchanged on Friday. Fears of a 2008-style crisis in the European Union, and increased last-minute physical demand ahead of the Diwali festival in India helped gold post moderate gains overnight.

Silver, which also saw modest gains overnight, is shooting straight up in early New York trading to break above $17.50. Platinum saw a small jump at the Hong Kong open overnight, riding that gain in steady trading through the London trading day. Palladium is just above unchanged.

The dollar gave up mild gains to fall to near unchanged in early  morning trading in New York. Brent crude is down over 50 cents to below $86, while West Texas Intermediate is below $83. Stubbornly lower crude prices are squeezing oil producing nations world wide.

Yesterday in the Markets

Friday saw US stocks post significant gains to snap a nasty losing streak after a volatile week. The platinum group metals closed with modest gains, while gold and silver closed just under unchanged.

Economic News Affecting Gold

EUThe economic crisis in Europe is dominating global markets, as Spain, Italy and Greece were all reported to have experienced deflation last month. Being tied to the same currency as powerhouse Germany and the Scandinavian nations means that the distressed countries along the Mediterranean cannot devalue their currency to recover. This traps them in a deflationary spiral that drags the other EU nations down as well.

Some European economists are blaming the woes of the South on their non-competitiveness, noting that labor expenses in Spain are €23/hr in Spain, but only €7 in Poland.

St. Louis Fed President Bullard threw a lifeline to Wall St last week when he said he thought the Fed should continue QE. That lifeline was jerked back when Dallas Fed President Richard Fisher expressed the exact opposite opinion, calling for the Fed to stick to plans for ending QE this month.

Geopolitical News Affecting Gold

terroristUS Air Force C-130 cargo planes airdropped medical supplies, weapons and ammunition to the Kurdish defenders in the Syrian border town of Kobani. US military spokesmen said the weapons and ammo were supplied by the regional government of Iraqi Kurdistan. Allied air forces have conducted 135 airstrikes against extremist ISIS forces fighting to overrun Kobani, helping stall their offensive. Turkey is allowing Kurdish Iraqi peshmerga to transit Turkey to reinforce Kobani, while trying to keep its own Kurds from crossing. The Turkish government has fought an insurgency against the Kurdish PKK in southeastern Turkey since 1984, but has productive relations with the Iraqi Kurdish regional government. This puts Turkey in a delicate position, since many Syrian Kurds are allied with the PKK. (The Kurds fighting in Kobani are not PKK allies, for the most part.)

Ebola has spread to two new regions in Guinea, while Nigeria has announced it is Ebola-free, after 42 days with no new cases. The spread of the deadly disease in Guinea is threatening the large AngloGold Ashanti gold mine in Siguiri, with new Ebola cases being reported less than 20 miles away.

Looking Ahead

China releases official GDP, industrial production, and retail sales at 10pm Eastern Time tonight. The US sees the release of retail sales and existing home sales tomorrow morning, with the home sales numbers likely to affect the markets one way or the other.

by Steven Cochran

Gainesville Coins Portfolio Tracker and Financial News

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