While U.S. stock indices opened lower this morning and precious metals halted, shares in mainland Europe were in the green on the calm of Friday’s loan extension agreement between Greece and its creditors. Germany’s DAX stock index advanced back near its recent all-time high, while shares across the continent were about 0.50% higher this morning. Only London’s FTSE lagged behind, off by just 0.20%. Even though the agreement with Greece is merely a measure to buy time, business confidence around Europe is nonetheless on the rise. In the States, stocks fell into the red just slightly on crude oil weakness; Asian markets were up, taking the Greek news well, as the Nikkei 225 reached its highest levels since the spring of 2000. Precious metals were up slightly, though silver far outpaced the rest, adding almost 1.5% to cross back above $16.50/oz.
Yesterday in the Markets
Friday was a quiet day of trading, as both equities and precious metals were largely flat. The markets did begin to move at the very end of the day, when the new extension to the Greek debt agreement was reached in Europe. Treasuries and the dollar remained steady.
Factors Affecting Gold Today
Greece may have struck a deal to keep its government running for a few more months, but the debt problem is yet unresolved. European markets have gotten an expected bump for the loan extension, but many still feel a Greek exit from the euro remains a distinct possibility. The European leadership will still have to approve a list of proposed reforms from the Greek administration; if the concessions are not to the negotiators’ liking, it could send the talks back to square one. What’s more, the provisional agreement has cost Prime Minister Tsipras considerable goodwill at home, as many Greek voters–and politicians within his own Syriza Party–are calling the move “treason,” criticizing Tsipras for breaking his campaign promises to end the austerity-contingent bailout.
Despite the uncertainty and risk of more serious economic consequences surrounding Greece, gold has not shone particularly brightly as a safe haven asset. Rather than seeing a brief boost from such demand, the yellow metal has actually been tumbling, barely keeping its head above the $1,200/oz line. As a result, hedge funds are cutting their positions on gold en masse: net long positions on gold fell by 18% last week, while shorts rose by 44%. In total, February has seen a massive $4 billion outflow from gold ETFs as funds have instead poured into the equities markets. While the traders have certainly been wrong about gold before, they are nonetheless dragging down paper prices by shedding ETF shares.
Meanwhile, gold buying has exploded in Saudi Arabia following the death of King Abdullah. Per tradition, the new monarch will bestow two months’ pay on all students and government employees. This so-called “king’s bonus” has been directly spent at the souks, or gold bazaars, driving up bullion sales (mostly in the form of jewelry).
HSBC, already under fire for its role in a tax evasion scheme in Switzerland, is also being probed for its activities in precious metals trading. The Commodity Futures Trade Commission (CFTC) issued a subpoena for HSBC’s arm in America, a process which the bank says it is fully cooperating with. As the hammer comes down on HSBC, expect the ball of yarn to unravel further, implicating other big banks and financial institutions.
Janet Yellen speaks at 10 am EST in front of the House Financial Services committee. Several other pieces of economic data are also set to be announced: Consumer confidence; S&P Case-Shiller HPI; PMI Services Flash; and the Richmond Fed Manufacturing Index.