Gold and silver opened higher this morning on two newsworthy developments: the People’s Bank of China has joined the monetary easing club; and the ADP private payrolls report missed projections by 12,000 jobs. The move by the PBOC is coinciding with rising gold sales in the East ahead of the Lunar New Year later in the month. Both platinum and palladium were also up as investors look to diversify their alternative investments. On Wall Street, the major indices are all expected to pull back today after staging a two-day rally to begin the week. Crude oil prices slid back sharply after four consecutive days of gains, but each remain comfortably above the $50/bbl mark.
Yesterday in the Markets
Precious metals opened down on Tuesday before gradually climbing back near unchanged. Stocks rallied for the second straight day, as the Dow Jones added another 300+ points. This sent bonds plunging on the biggest one-day sell-off of Treasuries in over a year. 10-year yields eased back to about 1.80% after touching as low as 1.69%.
Factors Affecting Gold Today
The ADP payrolls registered at 213,000 new jobs created for January, missing analysts’ projections of 225,000. Although the markets are mostly taking this as a bearish sign, the data doesn’t appear nearly as bad when the considerable layoffs in the shale oil fields due to falling crude prices is accounted for. Also, December payrolls were revised upward from 241,000 to 253,000.
ISIS is in the headlines again after a botched hostage negotiation with Jordan led to a Jordanian pilot being burned alive on camera; in response, the Jordanians executed the hostages that ISIS was seeking the release of. The gruesomeness of the ordeal aside, the escalation of the fight against the terror group is sure to stir anxieties about the unrest in the Middle East. This could provide some safe haven support for gold, especially if the split between various Islamic factions over the barbarism of the ISIS fighters begins to snowball into an all-out cultural war. While it is clear to most that innocent Muslims have condemned and fought against the actions of ISIS, the negative publicity so close on the heels of the Charlie Hebdo incident in Paris could stoke even greater xenophobia against Islam, particularly in Europe.
Speaking of Europe, the situation in Greece remains complicated. Although there have been positive signs that the new Greek government–and especially the country’s new Finance Minister–are willing to play ball with the European Central Bank and the Troika, the economic situation in Greece remains unresolved. There have been reports of bank runs already, as many Greek citizens (especially the older generations) simply cannot trust banks to hold their money in times of potential crisis. They are literally withdrawing thousands of euros from bank accounts and stuffing them under mattresses at this point. In January alone, there was an outflow of some €11 billion from the Bank of Greece. While the atmosphere continues to be one of negotiation and diplomacy, the main obstacle standing in the way of a Greek recovery remains the austere Germans. In response to the uncertainty, stocks were slightly down in Europe this morning.
Most Asian stock indices were up on the news that the People’s Bank of China will cut its benchmark reserve ratios, easing the amount of reserves lenders must keep relative to the loans the make. This move to open up monetary policy places China into the monetary easing club, which now includes essentially every major economic power in the world. Though the Chinese are notorious for manipulating and suppressing the value of the yuan, this may signal a reversal toward protecting their currency, especially after massively adding to their unofficial gold reserves over the last 5 years or so. Regional currencies that are pegged to China’s growth, such as the Aussie dollar and New Zealand dollar, are rising on the news, as the $96 billion injection of liquidity associated with the rate cut is expected to jolt the somewhat stagnant growth of the Chinese economy.
Tomorrow sees the U.S. International Trade Balance announced and weekly jobless claims released, while the Fed will reveal its balance sheet and the current money supply at 4:30 pm EST.