Gold is off about $9 early this morning and the dollar is about 0.6% lower as crude oil prices are recovering amid a two-day rally that has seen WTI crude rise back above $50/bbl for the first time in a month, and Brent crude recover back around $56/bbl. This left the dollar just a hair below 94.0 on the DXY, but also helped push equities futures up this morning. The jump in oil prices followed industry leader BP’s announcement that it would be cutting its capital expenditures by $2 billion to $3 billion this year, likely easing the global oversupply. Both WTI and Brent crude were up more than 2% this morning. The other precious metals–silver, platinum, palladium–are all slightly up despite gold’s dip, partly owing to their demand as industrial metals.
Yesterday in the Markets
Monday was a pullback in the precious metals market, with only palladium advancing during the trading session. Considering last month was the best for precious metals in multiple years, we should expect this kind of consolidation. Stocks were up and down throughout the day, but staged a ferocious rally late in the day to close marginally in the green.
Factors Affecting Gold Today
Wall Street was up nearly 1% on stronger oil prices, helping energy shares advance for what must seem like the first time anyone can remember. The situation in crude will become clearer now that United Steelworkers, the union representing laborers for U.S. oil refineries, is in negotiations with Shell to resolve the sector’s largest workers’ strike in three decades. The past 6 months’ falling oil prices have forced big industry players like BP, Exxon Mobil, and others to initiate layoffs. As the negotiations commence, about 10% of U.S. oil workers are involved in the strike; the union could potentially disrupt nearly two-thirds of the U.S. oil market if the workers strike at more plants.
Elsewhere, in the “Land Down Under,” the Reserve Bank of Australia joined the Easy Money Club by cutting its benchmark interest rates 25 basis points to a new record-low of 2.25%. This is the first time the bank has decided to move its benchmark rate in about a 18 months. The move sent the Aussie dollar sinking to a 6-year low against the USD, at just $0.765, and (predictably) pushing the ASX 200 index to its best closing numbers since mid-2008.
In Europe, Greece is beginning to back off of its stance on writing down its ECB bailout debt by proposing a swap of its current debt with new, interest-bearing bonds. This potential compromise is assuaging fears that a Greek exit from the EU would unravel the entire economic union, as the new Greek finance minister, Yanis Varoufakis, asserted that the country would like to avoid a direct confrontation with EU authorities. While it remains to be seen if this alternative agreement will come to fruition, investors responded to the news with enthusiasm, sending Eurostocks on the rise across the board.
The timing is auspicious for the entire Euro area, as the yield on the German 10-year bund has actually fallen below 10-year Japanese bond yields for the first time on record. In addition to an injection of liquidity, the economies of the Euro zone are looking for some much-needed reassurance about the stability of their union.
In other news, Standards & Poors has reached a $125 million settlement deal over a lawsuit relating to the rating agency’s shoddy evaluation of mortgage-backed securities leading up to the financial crisis; this is in addition to a $1.37 billion settlement S&P reached with the Department of Justice for inflating its ratings during the same time period, bringing the agency’s total costs in these matters to about $1.5 billion.
Tomorrow is a fairly busy day for market watchers: the Mortgage Bankers Association (MBA) purchase application report will give a broad gauge of the housing market; ADP private payrolls for January will be released; the EIA petroleum status report comes out; and the PMI Services index and the ISM non-manufacturing index will both be announced.