Spot gold cracked the psychologically important $1,300/oz threshold this morning, perhaps pushing toward the yellow metal’s first close above $1,300 since August of last year. Continued uncertainty over how the ECB will tackle its deflation problem, and how the world at large will escape an economic slowdown, have been stimulating safe haven demand for precious metals. While gold has certainly been the beneficiary of this development, silver may be the biggest winner. The white metal has climbed from its November lows around $15/oz all the way back above $18 per ounce, and shows no signs of slowing down. As of 10 am EST, silver was trading another 47 cents higher at $18.49.
Yesterday in the Markets
U.S. equities didn’t seem to know where to go on Tuesday, opening slightly up before plunging into the red, but by the closing bell all U.S. indices had recovered their losses. Crude oil remained stuck below $50/bbl. Meanwhile, precious metals all advanced in earnest: the platinum group metals each made gains of nearly $20, gold moved above $1,290/oz, while silver extended its winning streak by closing above $18/oz. Treasuries continued to rise, with the benchmark yield for 10-year bonds at just 1.78%.
Factors Affecting Gold Today
After cracking above $1,300, the gold price eased back to about $1,290/oz in early trading. Both Platinum Group metals were slightly lower, while silver gave up some of its gains to sit at $18.21/oz.
The real estate industry gave the economic outlook a boost today, as housing starts rose by 4.4% in December, beating forecasts and helping make 2014 the best year for the housing market since 2007, just before the abrupt pop of the housing bubble. The largest growth was seen in single-family building projects, which rose to a 7-year high. Every region in the country aside from the Midwest saw growth.
On a somewhat paradoxical note, the Federal Reserve is following the example of the IMF by cutting its outlook for the global economy this year. With the weakness in the Chinese, European, and Japanese economies, expectations are being rolled back across the board, with the plunge in oil prices signaling waning demand for energy as the machinery of the global economy continues to churn slower. This stands in stark contrast to President Obama’s seemingly triumphant State of the Union address last night, which was all roses and kumbaya despite the reality outside of his executive bubble.
Meanwhile, news is leaking about the size and structure of the expected QE package that the European Central Bank will announce tomorrow. Reports are that the stimulus package will be comprised of monthly €50 billion purchases to the ECB’s balance sheet. Yet, as European equities have been rallying in expectation of the central bank engaging in aggressive monetary easing, today saw the continent’s major indices slipping slightly into the red in early morning trading.
Everyone will be watching Mario Draghi’s press conference following the ECB policy meeting, wherein he is expected to announce and outline the central bank’s quantitative easing package.