Tuesday saw a tale of two commodities as gold prices surged during morning trading fueled by a single purchase of 1,293 COMEX gold futures contracts, causing the yellow metal to peak at just over $1,211 an ounce. On the other end of the commodity spectrum, weak global oil demand and increased American shale output aggravated concerns of a possible global over supply. This caused crude to drop to it’s lowest point since May of 2009, further squeezing a beleaguered Russian economy and putting added pressure on an already jittery OPEC cartel(particularly Venezuela). While American consumer confidence has rebounded over the month of December, it seems as though some are having a bit of end of the year anxiety as tensions between Putin and the West continue into stalemate, and possible deflation in the Eurozone still threatens to hamper global economic growth in the medium to long term.
Yesterday in the Markets
Monday trading left spot gold relatively flat, closing the day $12 lower than it’s high for the day, at just under $1,184 an ounce. Widespread fears over deflation risk in the Eurozone were stoked by more bad news from Greece, as political gridlock plagues the Mediterranean nation. European equities suffered a blow in Monday trading, corroborating fears that the inability of Greece to get it’s fiscal affairs in order still represents a serious threat to the whole of the Eurozone. Domestic stocks all ended the day with modest gains, the Dow Jones ending ⇑0.1%, the NASDAQ ⇑0.7%, and the S&P ⇑0.3%.
Factors Affecting Gold
Currently, the factors affecting gold over the medium to long term are much the same as they have been over the last 2 months, and can be boiled down into 3 main categories: The Russian problem, the continuing hardships of the European Union, and the American Recovery and resurgence of the US dollar.
The Conflict with Putin
Don’t let anyone fool you, the Russians are in this for the long haul. If history has taught us anything about Russia, it’s that they’re willing to scorch and burn everything in order to wait out and starve a foe. Continuing decreases in crude prices are continually battering the already crippled Russian economy and stock market. With Russian debt set to be downgraded to junk status by the major credit rating agencies, the long term prospects for the ruble are also looking incredibly bleak. While all of this has led to a short term boost for the American economy and the dollar (and consequently helped keep precious metals prices low), being in a state of constant economic warfare at a time of such global monetary uncertainty could have unforeseen repercussions for the US recovery (which could consequently put upward pressure on precious metals). Although it seems at this point that President Obama is winning in the short term, it’s foolish to believe that Putin and his cash flush and corrupt, ex-KGB run, Kremlin have any notion of capitulating to his American counterpart, regardless of the suffering inflicted on the Russian people. In the past, nations have fallen trying to invade the massive Russian landscape through brute force, will the invasion of the US dollar be any less impotent?
Europe Still Teetering
The recent elections in Greece, which will require snap elections in January to finish the Greek political reorganization, have reinvigorated fears worldwide that the Eurozone could be on the precipice of a deflationary downward spiral that many investors fear could bring the US and global economy down with it. With inflation across the entirety of the Eurozone well below 1% on aggregate, consumers could start putting off major purchases and push the battered Euro into an all out tailspin. At the moment, gold markets seem to be reacting to every move the ECB makes, so look for gold to be on the move should any major changes occur.
The American Recovery
Like it or not, the American economic recovery has been pretty robust and widespread over the last several months. Job creation has been steady, substantial, and widespread(spreading across all of the major sectors including manufacturing). At the same time, the dollar has been steadily strengthening over the last several months as crude oil prices have been slashed nearly in half and the crunch on Putin continues. Consumer Confidence seems to be rising higher than ever, hopefully it doesn’t turn into the kind of irrational exuberance that brought the American economy to it’s knee’s in 2000 and 2009. Is the stock market in a bubble? It’s on track to be up by more than 8% for the year. Or is it the windfall from finally turning the corner on recovery?
With the New Year just around the corner, try not to think about the economy too much. Enjoy your New Year’s Eve Celebrations, and give yourself a day off. Who HONESTLY knows what the future will bring? From everyone here at Gainesville Coins, Happy New Year (We’re saying it a day early because we know that no one is going to read the Market Update tomorrow, including myself).