Following the failed Swiss gold referendum vote on Sunday, gold and silver each began to nosedive in weekend trading. Gold slumped near $1,143, its lowest in 3 weeks since touching below the $1,140 mark in early November, which was a 4-and-1/2-year low. Almost simultaneously, silver plunged over 6% to below $14.50, its lowest in more than 5 years.
Monday morning saw a swift reversal, however, as both metals jumped back well above their Friday closing prices, wiping out the losses from the several previous trading sessions. Platinum also rose sharply early on Monday, quickly gaining nearly 2%.
Yesterday in the Markets
Friday’s closing numbers:
|10-yr T-note:||2.16%||-8 bp||-3.57%|
Economic News Affecting Gold
The dramatic fall in gold and silver prices that began on Friday and continued throughout the weekend coincided with overwhelming 78% vote against the Swiss gold referendum, but was also helped by the dollar rising to a 5-year intraday high on the DXY spot index on Friday. In addition to the strength of the greenback, the prolonged tumble for crude oil also contributed to lower metals prices and cheaper commodities generally.
West Texas Intermediate fell by more than 10% on Friday, dropping close to $66 per barrel, a fresh 5-and-1/2-year low. Brent crude also lost 3.35%, sliding to about $70/bbl. With global demand falling amid slowing manufacturing and growth, oil supplies simply keep rising, causing the price to track ever lower. Output in the U.S. is at its highest in three decades thanks in no small part to the boom in shale oil. Treasuries also saw renewed demand, as the 10-year note yield fell 8 basis points to 2.16%.
Monday’s jump in precious metals was matched by the dollar easing a bit, receding about 0.6% to below 88.0 on the DXY. Meanwhile, the dollar still strengthened against the yen, which slid to a 7-year low following Moody’s announcement that Japanese sovereign debt was being downgraded from Aa3 to A1, one tier lower. The announcement comes in response to concerns that the country’s economy is struggling to meet the Abe Administration’s ambitious goals for economic growth and deficit reduction, spurring a new round of quantitative easing measures in the world’s third-largest economy.
Stocks opened lower on Monday following an underwhelming weekend for retail spending. U.S. sales on Black Friday slid for the second consecutive year, as the appeal of post-Thanksgiving “doorbuster” deals may be losing a bit of its luster. Retail spending on Black Friday was 11% lower year-over-year, and most analysts are expecting disappointing numbers for the informal consumer holiday, Cyber Monday, as well. Large retailers’ practice of offering special seasonal deals during the days and weeks leading up to Thanksgiving are also likely cutting into the spending totals on these days, which have still crossed into the billions of dollars already this season.
Hochschild Mining, based in the U.K., is cutting production at two of its silver mines in Peru, citing falling silver prices. This echoes the situation for many silver mines in Central and South America, as most of the silver mined each year actually comes from other extraction operations where trace amounts of silver are recycled. Although chronically low silver prices are threatening junior miners, they helped propel the Perth Mint’s silver sales to a 10-month high in November.
Geopolitical News Affecting Gold
The largest geopolitical driver going into the last month of the calendar year is undoubtedly the oil market, at which Saudi Arabia is squarely at the center. It would appear that the Saudis are playing the long game with oil prices following Thursday’s decision by OPEC not to cut its production. This agreement came in spite of considerable dissent from member countries such as Iran, Iraq, and Venezuela, demonstrating the Saudis’ pull on their oil-producing allies.
The strategy of maintaining overproduction to keep prices low may help the West get out of a recession, while at the same time hampering green energy alternatives and undercutting U.S. shale development. Saudi Arabia and OPEC are likely also banking on renewed oil demand and rising prices from the EU and China once the global economy fully recovers. Essentially, the move puts the ball in the court of American and European oil companies to choose between slowing their exploration projects or risking going broke. Russia, who is already under economic sanctions from the West, is being especially hit hard by tumbling crude prices, as the ruble erased its recent rally after becoming a free-floating currency by plunging some 9% last week.
In Asia, it was reported that China’s PMI for November registered at just 50.3, a drop from October’s reading of 50.8. This signals an even further slowdown for Chinese manufacturing, as a PMI below 50 represents a contraction. Asian markets weren’t helped by renewed protests in Hong Kong, where fresh clashes between pro-democracy protesters and riot police caused a temporary shutdown of the municipal government.
Elsewhere, November numbers for the EU disappointed investors, driving most Eurostocks into the red this morning. Eurozone inflation came in at just 0.3% for the month, matching a 5-year low and falling woefully short of the EU’s goal of 2% inflation. As the recession on the continent seems to worsen, with Germany’s manufacturing output surprisingly contracting in November, the ECB remains torn on its policy direction. Several members of the ECB’s 24-member governing board have voiced reservations about additional stimulus measures, citing the slump in energy prices as an economic reprieve of its own. ECB President Mario Draghi is adamant about exploring all possible measures for kick-starting the economy, however, much to the chagrin of the more conservative ECB board members. On a more positive note, PMI in the U.K. rose moderately higher to 53.5, its highest level in 4 months.
Last month’s motor vehicle sales and consensus construction spending will be released on Tuesday morning. Impressive numbers in these two reports could be a sign that the economy is expanding. Also, Federal Reserve Vice Chair Stanley Fischer will be speaking at a Wall Street Journal CEO conference held in Washington tomorrow at 8:15 AM EST.