Gold is off its recent 3-week high ahead of the release of December’s FOMC minutes today. Stock futures rose after this morning’s ADP Employment report showed the best job growth in the U.S. since June, with 241,000 new jobs added.
Although precious metals are down this morning, news that 12 were killed in an act of terror against a French satirical magazine may stir some demand for security from a possible spread of fear, uncertainty, and instability.
Yesterday in the Markets
Stocks continued their slide on Tuesday, but at a more moderate pace than Monday’s blood-letting. Gold jumped about $15, silver added 34 cents for back-to-back sessions with over 2% gains, and bond yields plunged 8 basis points to 1.95% for 10-year T-notes. With Treasury yields so low, it stands to reason that investors will begin to look to alternative safe havens, which would logically lead them to gold and silver.
Factors Affecting Gold Today
U.S. stocks are predictably recovering after five consecutive sessions in the red. Crude oil is also up this morning, but only nominally, as the ever-important commodity looks to make up ground after one of the most dramatic price crashes in recent memory. With WTI crude below $50, the benchmark has lost over 50% of its value from this summer’s price levels. The dollar continues to track inversely with falling oil prices, rising above 92.0 on the DXY index for the first time in nine years.
The U.S. trade deficit is shrinking thanks to collapsing oil prices, hitting a fresh 11-month low. The landslide for crude prices has generated some pretty unavoidable zero-sum scenarios for developed and emerging markets, wherein net oil importers are enjoying cuts to their trade deficits, while oil exporting countries are seeing their account balances swell into the red with weaker revenues in the oil trade. In a geopolitical sense, low oil prices are good for key players China, Japan, India, and the U.S., while traditionally belligerent nations like Russia, Iran, and Venezuela are being hit hard.
This has also contributed, however, to worsening deflationary risks in the Euro area. More than low inflation and growth, prices in Europe are now actually falling, the first time the EU has faced this scenario since 2009. The ECB remains largely split on how to approach the growing deflation problem, and President Draghi does not seem to have the necessary support to implement all of his proposed stimulus measures. The central bankers are mulling over purchasing the sovereign debt of member nations; whatever form the quantitative easing takes, it will likely come soon, and will likely be opposed by a significant portion of the ECB’s governing board. In addition to Eurozone deflation, the French terror attack against an outspoken satirical magazine is creating even more uncertainty for the region; the emergency response that it will trigger could further complicate an already stick economic situation for Europe, as thoughts and resources will undoubtedly be diverted toward dealing with the terror crisis.
In the ever-exciting arena of regulatory news, Britain’s Financial Conduct Authority has announced that, beginning in April, it will begin to regulate 7 new financial benchmarks in the wake of several rigging scandals over the past three years. In addition to increasing its oversight in the interest rate, forex, and oil markets, the FCA will also add the London Gold Fixing and the LMBA Silver Price to its list of regulated benchmarks. While the expansion of the regulatory apparatus should at least give the authorities a better opportunity at sniffing out manipulative practices, it remains to be seen how effectively regulators can avoid being “captured” by the subjects of their oversight.