Oil prices are rallying after news that United Steelworkers have gone on strike, a labor dispute involving oil refineries around the country. The timing comes just ahead of spring, when seasonal energy demand really starts to pick up. This development is helping oil extend its gains, as WTI is approaching $50/bbl again and Brent crude sits around $55/bbl. Gold, silver, and platinum were each modestly lower, while the dollar also eased up. Treasuries continue to be in rabid demand, as 10-year yields are hovering just below 1.70%. The markets have been volatile of late, so the reversal in crude prices could bring even more unpredictability, especially as the world economy finds equilibrium amid slowing growth abroad. Palladium was the only among the metals to rise this morning, pushing $10 higher to $784/oz.
Yesterday in the Markets
Friday saw the stock markets continue their volatile swings, as equities fell hard to end the week. The precious metals advanced to close out January, making it the best month for gold in 1-and-1/2 years.
Factors Affecting Gold Today
Stocks opened mostly flat this morning in spite of the report that consumer spending fell in December by the largest margin since September 2009. Analysts still expect household spending to rise to begin 2015. Last year actually saw the best annual growth in consumer spending since 2006, once inflation is adjusted for. Part of last year’s rise in consumer spending was due to the plunge in gas prices, giving Americans more free cash to spend as they pleased.
Measures of China’s economy continue to show that, although it has been happening at a very gradual pace, Chinese manufacturing is beginning to contract. Both HSBC’s purchasing manager’s index as well as China’s broader official government PMI have come in at 49.7 and 49.8, respectively; any reading below 50.0 represents a contraction of the manufacturing sector, albeit slight.
More so than the apparent slowdown in China, markets are jittery about the growing illiquidity of the U.S. Treasury market. This is stoking volatility and making prices more acutely responsive to changes in Treasuries. Obviously, high volatility and a lack of liquidity are not the hallmarks of a strong safe haven asset; the crowding in government bonds may be the next driver that sends precious metals on their next rally. The 10-year T-note yield was down to just 1.69% as of Monday morning.
While the European Central Bank’s new bond-buying stimulus program is beginning to take effect, the situation in Europe remains uncertain, to say the least. The bank still must work out how it will handle the issue with Greek bailout debt, as it seems less and less likely that the new leftist government of Greece will cooperate with the Troika that oversees the terms of its EU bailout loan. Germany shows no indications of backing down off of its opposition to a writedown of the Greek debt, creating a political impasse that threatens to tear the entire Eurozone alliance apart. Ironically enough, the confusion and uncertainty has not deterred investors in desperate search for yield, as capital is beginning to flow back into Europe in anticipation of widespread central bank stimulus. Greece seems to be hitching its wagon to the sinking ship that is Russia, where this year’s GDP growth is expected to be 3% lower than last year’s, while economists have also updated their inflation projections from 7.5% to a whopping 12%.
Factory orders for December and motor vehicles sales for January will carry the day tomorrow.