A big surprise in German economic outlook boosted the euro today, which softened the dollar and added fuel to a short squeeze in gold.
Spot gold broke above the psychologically-significant $1,200 mark in early trading before profit-taking set in in New York. Gold had started a new rally even before the ZEW economic sentiment survey was released. Physical buying in Asia is reported to be picking up as gold prices seemed to be holding the rebound from recent lows. Sales out of the Shanghai Gold Exchange were already 90% of last November’s level on Monday. Gold Forward rates are still at their lowest in 14 years, but are attempting a halt to their slide.
Deeply negative GOFO rates as we are seeing now is an indicator of a shortage of leaseable COMEX and London physical gold. The huge physical outflows from the West to Asia since 2013 after the big drop in prices is reducing the amount of gold in the West. The situation is being exacerbated by economic sanctions against Russia for their seizure of Crimea. Mining companies in Russia are unable to export their gold to the West, so the Russian central bank is buying it up to keep them in business.
While this Russian gold may come back into the market in the future, it is doubtful that any of the gold sold to Asia will be seen in Good Delivery trading warehouses again.
Silver is up-and-down above unchanged, after gaining modestly in Europe. Platinum gave up an almost $15 gain in Europe to trade slightly above unchanged in New York, while palladium has been patiently since the Asian open.
Yesterday in the Markets
Gold traded just above and below the resistance line of $1,186.70 all day Monday, closing slightly above it for the second day. This transforms the $1,186.70 mark (which also happens to be the 50% Fibonacci retracement level) from resistance to support.
Euro stocks were up on ECB president Mario Draghi’s remarks that the central bank is reserving the option to purchase sovereign debt as part of its quantitative easing measures. Wall St. was mixed, with two big mergers in the pharmaceutical and petroleum sectors boosting the S&P to finish a point and a half in the green. The Dow gained over 12 and half points, while the Nasdaq was down a third of one percent.
Treasuries were slightly lower, with the yield on the 10-year note rising 2 basis points to 2.34%
Monday’s closing numbers:
Economic News Affecting Gold
As mentioned above, the big economic news in the EU is German economic sentiment registering at twelve times the expected level. Instead of the 0.9 reading everyone expected, the Zew economic outlook survey posted at 11.5. This follows a reading of -3.6 in October — a huge jump. This gave the euro a boost, and led the dollar downward.
Also in Germany, Frankfurt became the first financial center in Europe to settle payments directly in Chinese yuan (renminbi.) Trade between the EU and China is no longer required to use U.S. dollars as an intermediary for currency exchanges between euros and yuan, which will lead to lower demand for dollars in international trade. China last week signed a similar deal with Australia, one of its major suppliers of raw material.
Despite much lower gas prices, the final read on October producer prices in the U.S. came in at +0.2%,, twice as high as expected. This gives an annualized rate of 1.5%.
Consumer prices in the United Kingdom rose at an annualized 1.3% rate, but producer prices were lower than expected, due to plummeting Brent crude oil prices.
Geopolitical News Affecting Gold
Prime minister Abe of Japan has dissolved parliament and called for snap elections in one month, after the Japanese economy shocked investors by sliding into recession. This is despite the largest quantitative easing program in the world. Abe also announced that a hike in the national sales tax scheduled for April, meant to fund infrastructure improvements, will be pushed back into 2016. Abe is hoping to regain a mandate for his economic policies, known as “Abenomics,” by holding national elections.
Tomorrow sees the release of last month’s FOMC policy meeting minutes, sure to be picked over and scrutinized by countless investors and pundits. Housing data is also on tap, with the Mortgage Bankers Association mortgage purchase applications, and new housing starts.
In japan, the trade balance report is due.