First-time jobless claims hit an 11-year high after rising 21,000 this week for a total of 313,000 new claims. Most forecasts predicted a drop from last week’s numbers, so this jump indicates that slack remains on the U.S. labor market.
Wall Street opened mixed as disappointing core capital goods orders numbers reversed the dollar’s recent gains. The falling dollar allowed the euro to pull above two-year lows.
Physical gold buying in Asia saw an uptick as gold crossed below $1,200/oz. The yellow metal dipped in European trading following comments from the European Central Bank about impending quantitative easing measures. Silver was mostly flat in overnight trading as it seems to have stabilized above $16.50, while platinum has been seeing gains on supply concerns.
Yesterday in the Markets
Tuesday’s closing numbers:
Economic News Affecting Gold
With futures expiry set for today and the markets rather thin due to the Thanksgiving holiday, a higher level of volatility can be expected in trading. Plenty of junior traders will be active today, and the low volumes could allow individual trades to have a larger effect on overall movement in market, so don’t be surprised to see some volatile action today.
Yesterday, the release of poor consumer confidence numbers caused the dollar to tank, from which it never quite recovered. Stocks were lower in late morning trading, but all three indices moved back into positive territory by 1 pm. The attendant dip in the gold price sparked short covering, while demand for Treasuries drove the yield on the 10-year note down 5 basis points to 2.26%.
In fact, Tuesday’s Treasury auction showed the highest levels of foreign demand for U.S. Treasuries in a decade, especially for 5-year notes. Although U.S. bonds have little room to move any lower, they are still currently a more attractive safe haven than their counterparts abroad: the German 10-year note sits at just 0.75% as a government report revealed that capital investment was down 0.9% in the third quarter, while the Dutch 10-year note is selling at record-low yield of 0.895%.
The jobless claims miss helped the dollar continue to fall, as the inferred weakness in the labor market means that the Fed will likely wait longer before it raises rates. A lower reading for the Chicago PMI this morning indicated that business activity is slowing in the Midwest. Oil prices are not only being dragged down by this slowing growth (in both the U.S. and abroad), but also by reports that OPEC members are not expected to cut production. Pending home sales dropped in October while new home sales were up slightly. The median home price also rose, but this has been pulled up mainly by growth at the very top of the market.
Both incomes and consumer spending were up about 0.2% in October. Much of the spending, however, was used for clothing, utilities, and rent–the bare essentials. Despite making modest gains overall, proportionally higher spending on necessities shows that there are still many American consumers who are struggling just to make ends meet. With the global economy slowing, manufacturing inventories continue to rise as production outpaces consumption. Auto sales also slipped by 0.2%.
Durable goods orders beat expectations, rising 0.4% in October despite analysts’ predictions of a 0.5% drop. This was a welcome reversal of September’s -0.9% reading. The gains, however, are largely the result of a 45.3% surge in military spending as new planes, missiles, and other war implements are being produced for the fight against ISIL in Iraq and Syria.
In what is becoming an almost weekly tradition, big banks are drawing fresh scrutiny from U.S. regulators for their unethical activity in the markets. A New York-based jeweler is suing Goldman Sachs and HSBC (among others) for using inside information to manipulate and profit off of precious metal prices. The complaint focuses on the somewhat ignored platinum group metals, as the plaintiff alleges the two banks and their cohorts engaged in rigging the platinum and palladium price fixes.
Geopolitical News Affecting Gold
The big news from Europe came from ECB Vice President Vitor Constancia, who said the central bank may start its own version of QE as early as the first quarter of 2015. This accelerated timeline drove the euro down and dollar up, which was slightly bad news for gold. European stocks also rose on the news, as investors made their moves with the expectation of easy money coming from the ECB in the near future.
In addition to the timing of Eurozone QE, the matter of the EU’s sanctions against Russia has returned to the fore, as well. German Chancellor Angela Merkel, who has been very critical of Vladimir Putin’s refusal to work with its erstwhile European partners, is also directing criticism at the Ukrainian government for its attempt to hold a referendum on joining NATO. (This is not the typical procedure for joining the trade organization.) After opposing measures to put Ukraine on the path to NATO membership in 2008, Merkel is again speaking out against the move. She has voiced concerns over further antagonizing Russia, which the inclusion of Ukraine in the Western-dominated NATO would certainly do. Along with her criticisms of Ukraine, Merkel also reiterated the need for economic sanctions against Russia so long as Putin and the Kremlin refuse to cooperate. It would seem that Putin has confidence in the Russians’ eternal ally, the winter cold, to bring Ukraine and the West to the bargaining table.
Elsewhere in Europe, third quarter GDP was up 0.7% in the U.K., and the country can also currently boast of its 3% growth year-over-year. At the same time, as France is mired in stagnation, the right-wing group Front Nacional is calling for the central bank to audit all French gold reserves, whether held domestically or abroad, including any gold lease agreements or other encumbrances on their reserves. This echoes similar gold repatriation efforts advocated by political factions within the Netherlands, Switzerland, and Germany.
Meanwhile, with the global oversupply of oil amid waning demand, many are wondering if (or when) the oil-producing member countries of OPEC will decide to cut their output. Iraq and Venezuela have voiced their desire to cut production, but Saudi Arabia and the United Arab Emirates have been consistent in their stance against any significant production curbs. A Venezuelan foreign minister suggested that oil production cuts remain unlikely, as OPEC seems determined to undercut U.S. shale producers by allowing crude prices to fall even lower. In advance of tomorrow’s OPEC meeting, crude oil has reversed its recent gains, again plunging to four-year lows. WTI lost over 2.5% on Tuesday, falling below $74, while Brent crude gave up almost 2% as well.
In Asia, gold buying has been jumping up anytime the price dips below the $1,200 mark. Gold imports through Hong Kong registered at 7-month high in October.
Markets will be closed in observance of the Thanksgiving holiday tomorrow, and many traders will not be back until Monday. While most expectations for Thursday’s OPEC meeting are that production curbs will not be implemented, any surprises coming out of the encounter could certainly elicit a reaction from investors and competing producers alike.