The Bank of Japan shocked markets today with sudden large increase in its stimulus program. Already running the world’s largest QE program, the B0J announced that it was boosting its goal to raise the monetary base in two years from 60-70 trillion yen to 80 trillion yen.
Stock markets exploded, with the Japanese Nikkei index shooting up 755 points, 4.83%. Euro markets followed suit, and Wall St. opened sharply higher, with expectations of the S&P 500 hitting a new all-time high this morning.
The yen plummeted to a 7-year low, and the euro fell on deflationary fears. The dollar is sharply higher, flirting with the 87 mark on the DXY index. Crude oil dropped over $1 a barrel.
Gold swooned over $35 an ounce to touch a low of $1,160 this morning, breaking through support at the triple bottom of $1,183 before recovering. Investors are selling off other assets to pile into the stock market.
Yesterday in the Markets
Stocks opened mixed yesterday, simply because VISA pulled the Dow into positive territory all by itself. The S&P 500 was above unchanged before noon, and the Nasdaq managed to surface in late trading. The hawkish tone of the October FOMC announcement continued to weigh on precious metals. Gold closed under $1,200, and silver closed under $17. The PGMs were down moderately
Thursday’s Closing Prices
Economic News Affecting Gold
The Big News is of course the Bank of Japan’s surprise ramp-up of its stimulus program. Coming only two days after the Fed ceased its outright bond purchases, it shines a spotlight on the diverging paths of the two nations.
In Europe, the Russian Central Bank sprung a surprise of its own, hiking interest rates 1.5% in one giant swoop, from 8% to 9.5%. The benchmark interest rate in Russia in March, before the seizure of Crimea, was only 5.5%. The move was made to stave off rampant inflation in Russia, sparked by an absence of hard foreign currency for international trade. When more rubles are chasing fewer dollars or euros, the price goes up. Even after the rate hike, the ruble fell more than 2%.
European Union inflation for October came in at 0.4%, barely up from the 0.3% increase in September. Unemployment for the region as a whole remained at 11.5%.
In the US, consumer spending unexpectedly dropped, falling 0.2%. Wages barely kept up with the anemic inflation rate. This drop in spending may be cash-strapped families beginning to save up for Christmas gift-buying, since consumer confidence rose slightly, to a reading of 86.9 from 84.6 in September. This is the best reading since the Lehman Brothers collapse in 2008.
The employment cost index in the US for the third quarter rose 0.7%, the same as for the second quarter. This should be reflected in producer prices, and slightly ease fears of deflation spreading to the US.
The CEO of GoldCorp, one of the world’s largest gold miners, is predicting that 2015 will see “peak gold,” with global production declining afterwards and never recovering. he says all the big, high-grade deposits that can feasibly be worked have been discovered. The existing deposits that remain are smaller, lower grade, or both.
Geopolitical News Affecting Gold
Ukraine may be forcing itself back onto the front pages next week, as the rebels in eastern Ukraine are holding elections for their own government. Russia says it will recognize the elections of rebel governments in eastern Ukraine, which may ignite all-out war between the rebels and the newly-elected Ukrainian government in Kiev. If so, there is a high likelihood of Russian troops and vehicles crossing the border to assist the rebels, which will destroy any hopes of reducing economic sanctions that are dragging both Russia and the EU into recession.
Looking ahead, Monday morning will greet us with PMI numbers from China, France, and Germany, with consumer spending and the ISM PMI reports in the US. Watch for international turmoil over the rebel elections in Ukraine on Sunday.