Gold jumped more than $12 early this morning on seasonally strong buying patterns from China, where gold in is in demand in anticipation of the Lunar New Year approaching in February. The yellow metal was held back from further advances by a rising dollar, although other geopolitical factors (mostly pertaining to Europe) are working in favor of precious metals as we move into 2015.
Yesterday in the Markets
Friday was a less-than-stellar sessions for PMs, as gold fell to a one-month low south of $1,170 in intraday trading, and silver fell below the $16 mark. Yields on 10-year Treasuries plunged below 2.10% on safe haven anxieties, as investors wary of the uncertainty in Europe and Asia chose to put their money into U.S. T-notes.
Factors Affecting Gold Today
In addition to gold rising, silver also spiked about 50 cents this morning, rising above the $16.25 mark. Although platinum and palladium were mostly unchanged, they still were comfortably above their most recent lows. Crude oil prices continue to show weakness, as both international benchmarks were down over 3% this morning. This is pulling down energy shares, sending all three U.S. stock indices into the red.
While the dollar hit a nine-year high on the DXY spot index, the euro has plunged to a nine-year low on fears that Greece may exit the EU and send the region into even greater turmoil. With the Greek parliament’s failure to approve a new president, elections held at the end of the January could put the left-wing Syriza party into power. The faction has made it clear that they will reverse German-style austerity if elected, and even push for Greece to default on its EU bailout and exit the Eurozone entirely.
The ECB meets on January 22 in Frankfurt, Germany, and may accelerate its asset purchases and other stimulus measures to address the situation in Greece and possibly avoid a contagion across southern Europe. With the economies of Portugal, Spain, and Italy all somewhat in peril, the departure of Greece from the currency union could spell a brushfire across the region. Even German inflation has slowed to a six-year low, and some experts are predicting negative price inflation for the Eurozone in December. The uncertainty over what will happen next for the European economy has helped stimulate some safe haven demand for gold, while also helping the euro ease against its competitors.
Meanwhile, the outlook for Asian gold-buying remains strong. The expectation of soon-to-come monetary easing in China (and,of course, Japan) has boosted the country’s stocks; this follows the Shanghai index gaining 50% over the course of 2014.
Gallup’s Economic Confidence Index (ECI) for December will be released Tuesday morning, which gauges how Americans feel about the state of the economy and which direction it is trending. Tuesday also sees the Purchasing Managers’ Index (PMI) for the service sector, along with the non-manufacturing ISM for December and factory orders for November.