Gold is higher in New York on physical buying and safe haven demand, after hitting two-week lows yesterday after the December FOMC meeting concluded. After sleeping on the news, the markets decided it was dovish enough to warrant a rally in precious metals.
Stocks, which had notched their best day in weeks after three days of nasty losses yesterday, opened higher on Wall St. this morning and promptly rose over 1%.
The dollar saw marked volatility overnight, but is trending in New York trading over 89 on the DXY index.
At 11am EST, Gold is up $5.50 to $1194.40; silver is up 19 cents (1.17%) to $15.94; platinum is up $10 to $1196.00, and palladium is up $12 to $788.00.
Yesterday in the Markets
While the surprise opening of diplomatic relations between the United States and Cuba after a prisoner swap grabbed headlines yesterday, as far as the markets were concerned, it was all about the Fed. Although the magic phrase “considerable time” before raising benchmark interest rates was removed from the Open Market Committee policy statement, it promised that the Fed would take a “patient” approach to raising rates. Fed Chair Janet Yellen clarified in her press conference that it would be “at least a couple of meetings” before rate hikes would be discussed. Yellen also said that excessive leverage in Too Big To Fail Banks was not a major concern of hers, and that low oil prices would not affect inflation rates over the long term.
Stocks jumped on her words, with the Dow and S&P 500 notching their best day of the year. Investors piled out of bonds and into stocks, sending the yield on the 10-year Treasury note up 8 basis points to 2.14%. The dollar was up 1% compared to a basket of currencies. Gold and platinum both lost $6 to both close under $1200, while palladium was also down .5%. Silver was the least affected, up three cents to $15.75.
Factors Affecting Gold Today
Crude oil steadied in New York, easing from gains of over 1% earlier in the morning. Economic news in the US is mixed, if the Markit flash Services PMI dropping to a 10-month low of 53.6, but consumer confidence hit a 7-year high on brightening job prospects and lower oil prices easing pressure on household budgets. First-time jobless claims dropped by 6,000 last week, with only 289,000 new applications for unemployment.
Rivers of gold continue to flow from the London Bullion Exchange into Switzerland, where it is recast into kilobars for the Asian market. All major Swiss gold refiners are estimated to be running at full capacity, belying softness in the “paper gold” market.
Also in Switzerland, the Swiss National Bank is resorting to negative interest rates in an effort to stem safe haven flows into the Swiss franc. In order to keep Swiss exports affordable for the rest of Europe, the central bank tries to keep the franc at a 1.2 to 1 exchange rate to the euro. Fears of financial collapse in eastern Europe and pressures on oil-exporting nations from plunging crude prices have increased safe haven demand for the Swiss franc. To discourage large cash positions in the franc, the Swiss National Bank is now charging a 0.25% fee on cash accounts over 10 million francs.
Russian President Vladimir Putin’s three-hour press conference had been heavily promoted thoughout the nation, using historical images of Russian triumphs against adversity. While light on details, he claimed that it would be two years at the most before the ruble recovered, even if Western sanctions over the invasion of Crimea continued. Putin blamed the US, Saudi Arabia, and the EU for Russia’s woes, claiming the nation’s enemies were closing in to “rip out the teeth and claws” of the country. The ruble had recovered from recent all-time lows before the speech, as both the Russian central bank and the finance ministry intervened in the markets to use dollars to buy rubles. Russia’s version of the National Security Council met yesterday to craft plans to stop the collapse of the economy, saying conditions had deteriorated into a national security risk.
Expect daily volumes in all markets to shrink, the closer we get to the end of the year. Also expect tax-related selling, as investors dump poorly performing assets to offset the tax liability of capital gains.