European shares were down this morning after the Greek government failed for the third time to garner parliamentary support for the administrations new presidential candidate, triggering a dissolution of the legislative body and snap elections in January. As confidence in Greece’s ability to stabilize its political and economic institutions continues to deteriorate, the potential for a shock to an already-shaky European Union becomes an increasingly pressing concern.
Across the Atlantic, U.S. shares were mixed on the news. Gold and silver were tracking slightly lower despite both crude oil benchmarks rising by more than 1.2% each in early trading.
Yesterday in the Markets
Friday saw stocks advance to new highs yet again. Activity in equities has risen heading into the end of the year, as signs of weakness around the global economy have left U.S. stocks looking rather attractive to investors; despite reasonable concerns that the market is currently inflated, the financial news outlets are again trumpeting that the safest place to put your money is the U.S. stock market. Meanwhile, the precious metals rose sharply on Friday morning and stayed above water throughout the day. Gold pushed more than 1% higher while the white metals (silver, platinum, and palladium) collectively moved well above their recent lows. Even with the stock market overheated, it seems some investors are wisely hedging their portfolios with tangible assets like gold and silver.
Factors Affecting Gold Today
The possible spillover of the tenuous situation in Greece is manifold: the political vacuum created by the lack of support for Prime Minister Antonis Samaras’ chosen candidate for president is likely to be filled by the Syriza opposition party, a far-left faction that harbors anti-EU and anti-austerity sentiment within its ranks. Many fear that a victory for Syriza in the upcoming snap elections could encumber the European Central Bank’s planned asset purchase program, as well as threaten the continued viability of the Eurozone common currency.
At this point, many analysts are concerned that the outcome of the elections may lead Greece to reject austerity and exit the EU. Expect to see some safe haven buying of precious metals as those with positions in the European markets will likely seek protection from a Greece-induced meltdown. The initial reaction to the news of snap elections was a drop for European shares, as stocks and bonds were in the red almost across the continent.
In Japan, the introduction of yet more monetary stimulus promises to further erode the strength of the yen, which has lost 33% of its value against the dollar over the last two years, when the country’s accommodative economic plan first went into effect. Most alarmingly, investment has been flowing out of the Pacific island at a quickening pace. Cash inflows have plunged 94% year-over-year to just ¥898 billion, while outflows from pension funds in the third quarter alone totaled ¥2.2 trillion. With the yen currently trading at 120.5 to the dollar, many analysts are expecting the currency to fall further, perhaps as much as another 20% over the next two years.
Elsewhere in Asia, the Chinese will likely drive gold demand heading into 2015, as imports of the yellow metal through Hong Kong have been rising over the last month. There were net inflows of over 99 tonnes of gold in November, which doesn’t account for incoming gold through other parts of the country. Chinese gold demand is worth keeping an eye on, especially with the Lunar New Year approaching in February, which is typically a time of buying gold as gifts for good fortune.
Meanwhile, the outlook for the bond market in the U.S. is fairly bleak at the moment: most experts are forecasting a significant rise in bond yields during 2015, as market sentiment for government debt is mired at its lowest levels since 2009, in the thick of the financial crisis aftermath. Low inflation expectations are contributing to the negative sentiment for U.S. bonds, as is the ongoing recovery for the American economy. This makes gold a fair safe haven alternative from sovereign debt for many investors.
The S&P Case-Shiller HPI (home price index) and consumer confidence data are scheduled for release Tuesday morning, providing a clearer picture of how well the American consumer is positioned within the current economic landscape.