Gold made a stab above $1,200 in late trading in London for the second straight day as the yellow metal is primed to again test this resistance level. After gold recently broke through resistance at $1,186.70, this price became the support level at the 50% Fibonacci retracement. Meanwhile, the 38.2% Fibonacci retracement is now at $1,235.30.
The glow of recently announced mergers and acquisitions outweighed fears of an impending recession in Japan as the Dow Jones hit another record high on Tuesday and the S&P 500 followed suit on the strength of healthcare stocks. There have been $1.5 trillion in mergers this year involving U.S. companies, the most in nearly 15 years. Stocks opened modestly in the red on Wednesday, as did the precious metals, ahead of Wednesday afternoon’s release of the FOMC meeting minutes.
Yesterday in the Markets
Tuesday’s closing numbers:
Economic News Affecting Gold
Just in time for the build-up and anticipation that accompanies the release of the minutes from the Federal Reserve Open Market Committee meeting, a researcher at the San Francisco branch of the Fed concluded that inflation may not hit the central bank’s 2% target until after 2016. The researcher, senior economist Vasco Cúrdia, compared past models of inflation to the current outlook, and found that the probability of low inflation is far higher than the chances of high inflation. While this bucks historical trends, he nonetheless found that the “risk of high inflation in the next one to two years remains very low by historical standards.” Many see this report as a signpost that the Fed will remain highly accomodative in its monetary policy, even with the end to its bond purchases, for at least the next year or so.
Crude oil was down yet again yesterday, putting downward pressure on energy stocks and other commodity prices. West Texas Intermediate sat below $75, while Brent crude had even slipped below $79. Demand for U.S. Treasuries was slightly higher, as the yield on the 10-year note fell by 2 basis points to 2.32%.
Geopolitical News Affecting Gold
Greece is pushing back against the terms of the country’s EU/IMF bailout agreement, taking exception to requirements such as the Greek government being forced to cut its budget deficit by a wider margin. Greece would like to exit the bailout arrangement a year early, as greater austerity is a hot issue among the public. The Greek administration must balance between calls for more stimulus or austerity, as a rival political faction has taken up the austerity cause and could challenge the current regime in snap elections in February. Greece has been hit especially hard by the recession in Europe, although there were indications this year that the Mediterranean country is now gradually emerging from the economic doldrums. Despite fiery rhetoric from the government, most expect the EU/IMF inspectors to reach some sort of agreement on Greece’s future by the end of the year.
In India, October saw a 17-month high for gold imports into the country, as over $4 billion worth of the yellow metal was brought into the country (legally) during the month. This obviously doesn’t include the amount of gold smuggled into India, which has been on the rise this year with the introduction of an unprecedented 10% import duty on gold, along with other restrictions intended to curb imports and cut the government’s trade deficit. Gold consumption in India through the end of October this year has already surpassed the totals from all of 2013, when India (briefly, it appears) slid behind China as the world’s #2 importer of gold. Gold buying has been strong even as the government indicated it would be implementing even more restrictions on gold imports in the near future.
Everyone will be awaiting the release of the FOMC minutes at 2 pm today, as the markets invariably have some knee-jerk response to some nuance of the meeting minutes. Thursday is an extremely busy day of data coming in, with CPI, PMI, first-time jobless claims and existing home sales all set to be announced.