GDP, Dollar Pressure Gold: Morning Market Update Oct 30

October 30th, 2014 by

The Commerce Department released its preliminary estimates for third quarter GDP for the US this morning showing a 3.5% increase in the economy. This is more than the 3.0% analysts expected, and follows are big 4.6% increase for the second quarter. A 10% increase in spending by the Federal government offset softer consumer spending.

The news lent support to the dollar, which jumped from negative territory yesterday afternoon after the FOMC meeting. The stronger dollar and healthy economic outlook is putting pressure on gold. Precious metals are down across the board, with gold down three quarters of a percent, silver down 3.5%, and the PGMs down over 1.3%.

Stocks opened mixed on Wall St this morning, with the Dow opened up, and the Nasdaq and S&P 500 opening in the red.

Yesterday in the Markets

500px-US-FederalReserveBoard-Seal.svgThe bombshell in the markets yesterday was of course, the policy statement from the Federal Reserve Open Market Committee meeting. To the surprise of many, the FOMC discounted the dangers of deflationary pressures spreading to the US, saying that any downturn in inflation was a temporary effect of falling oil prices, noting “the likelihood of inflation running persistently under 2% has diminished somewhat.” The committee also said that the employment situation was improving.

These views were more “hawkish” than the markets had anticipated, leading stocks, bonds, and gold lower. The dollar which had been in negative territory day, jumped to a 4-week high. The dollar gained 0.74% against a basket of currencies, and the yield on the 10-year T-note rose 3 basis points to 2.32%. Yesterday’s closing numbers:

 Dow 16974.31-31.44-0.18%
 S&P 500 1982.30 -2.75 -0.14%
 Nasdaq 4549.23 -1507 -0.33%
 Gold $1211.60 -$16.20 -0.74%
 Silver $17.09 -$0.11 -1.32%
 Platinum $1257 -$8.00 -0.61%
 Palladium $792 +$2.00 +0.25%

Economic News Affecting Gold

European stocks are down, as banking stocks in Greece, Italy, and Spain act like a stone around the market’s neck.  First-time jobless claims for last week came in at 287,000 newly-fired people, an increase of 3,000, but still under 300,000.

The good initial GDP numbers seem to validate the stance taken by the Fed yesterday, and is causing jitters in the market that the “considerable time” for the first rate increase may not be that far off at all. These same fears are putting pressure on gold.

The ruble rose 2% as speculators jumped out of short positions ahead of the Russian Central Bank meeting tomorrow. Russia has spent $68 billion this year buying rubles with dollars and euros, in a futile attempt to halt the crash of their currency. The central bank is expected to at the least, raise interest rates again, and possibly even decide to throw in the towel and let the ruble freely float against other currencies.

Geopolitical News Affecting Gold

There’s little changed in geopolitics, as far as gold is concerned. Ebola still rages in West Africa, the US and allies are still bombing Muslim ultra-extremists in Iraq and Syria, and Russia is still demanding Ukraine pay its overdue bills for natural gas. As we’ve noted before, Putin has hunkered down and playing “rope a dope” with the EU, absorbing the blows from economic sanctions until Ukraine cracks and comes to the bargaining table under conditions favorable to Russia. Expectations that European countries will be pressuring Ukraine to cut a deal before winter sets in, would probably not be misplaced.

Looking Ahead

News to watch tomorrow is the EU composite inflation report, consumer inflation in Italy, and US consumer sentiment and personal income levels.

 

by Steven Cochran

Gainesville Coins Portfolio Tracker and Financial News