The precious metals were moving slightly higher this morning on some serious weakness in equities. All three major U.S. stock indices were about 1% lower from the opening bell, heading toward their worst performance in three weeks. Shares in Europe were also moving toward their biggest losses in three weeks as the Greek situation is beginning to way heavily on eurozone markets. Overall, the precious metals are likely to advance today amid red numbers across the global equities markets. Gold was again above $1,205/oz.
Yesterday in the Markets
Stocks rallied into the green at midday only to crash by the closing bell to about unchanged. We are seeing some of this momentum carry over into today. Despite opening moderately higher, the PMs also fell back into the red during yesterday’s trading, while Treasury yields hardly budged.
Factors Affecting Gold Today
The big news that’s driving all the stock indices lower is that China has updated its rules about trading on margin in its stock market, while also opening more avenues for short sellers. This curb on allowing shadowy means for purchasing equities is widely seen as China’s attempt to clamp down on the overheating of its stock platforms: the Shanghai index is up a staggering 50% in the last year alone. In response to the new rules, the index fell about 2% in after-hours trading. The rest of the global markets, however, are responding equally poorly, as shares are trading in the negative across Europe, North America, and the rest of Asia.
Data released in the U.S. shows that consumer prices are finally picking up, and perhaps inflation is even on the rise, as CPI rose by 0.2% in March. This is the second consecutive month that CPI has shown growth, helped in part by the recent rally in crude oil prices. If April shows yet another uptick in consumer prices, it will be a pretty solid indication that inflationary pressures are finally approaching acceptable levels for the Fed to raise interest rates. This helped the dollar bounce from a one-week low, moving back above 97.5 on the DXY.
As far as Fed-Watch news goes, the central bank is up to its own tricks: different officials from the FOMC have been making contradictory comments, creating plenty of action on both sides of the “When will rates go up?” betting line. The Fed is inclined to keep everyone guessing, but if inflation begins to normalize and the economy remains out of double-dip recession territory, the Fed will have a hard time justifying any further delays to normalizing monetary policy.
In Europe, the risky situation ongoing in Greece has continued to push investor funds into the seemingly safest places, and that means German government bonds. The yield on the 10-year Bund is at a new all-time low of just 0.07%, a staggering number in comparison to most of the other government debt issued around the world. The 30-year yield on German sovereign debt is only 0.50%–and that’s over a thirty year period! This trend has been happening across the continent, but shows that even at these incredibly low yields, there is still demand for the safety of German bonds.
Enjoy the weekend! If you’re just itching for some data that may sway the markets, CPI will be released in New Zealand on Sunday, as well as the tertiary index for the service sector in Japan.