The dollar is at a four-month low and dropping, while the euro continues to gain, giving investors on the Continent an easier time of moving into gold as a safe haven against a Greek sovereign debt default.
Producer prices dropped in the U.S., but may be countered by a drop in first-time jobless claims to allow stocks to regain their footing after recent heavy losses. Bonds (except for Greece) are mostly steady this morning, after several days of large losses.
Yesterday in the Markets
Gold and silver accelerated their rally Wednesday on heavy volume, with gold at one point up over $25 an ounce to brush against the $1,220 mark. Spot silver was up over 4% at one point, to settle up 3.7% at $17.09. Platinum also had a good day, rising by $16 an ounce, while palladium was only marginally higher.
Stocks opened higher, but fell in late morning trading to bounce along near unchanged, dipping briefly into the red at a couple of points. The Dow and S&P 500 closed barely below unchanged, while the NASDAQ gained 0.11%
Oil prices posted solid gains in early trading, as U.S. crude stockpiles were reported to have dropped by 2.2 million barrels for the week, but reversed the rally as a Saudi oil official reaffirmed the nation’s intent to continue pumping crude at a record rate, until it had run its Western competitors (primarily shale oil companies in the U.S.) into the ground.
The dollar dropped over 1% in midday trading to a three-month low and closed down .9%, while the euro (and European stocks) got some help when France announced the fastest GDP growth in two years. The European common currency was up over 1% against the dollar, rising above the $1.13 mark.
Factors Affecting Gold Today
Bond jitters, especially the growing shortage of short-term government securities for investors to use to move to the sidelines in the stock market, are combining with the continued decline in the dollar to boost gold.
The socialist government in Greece is seen by EU finance ministers to still be playing games in hopes they can force concessions from their creditors. This is not only supporting gold’s safe haven appeal, but has eroded most of the support the Greeks had among the citizens of other EU nations. Opinion polls are increasingly turning against them, which may tie the hands of EU leaders in making concessions to Greece that may have earlier been politically possible. Noting that no one can be “expelled” from the EU, the German finance minister is supporting the idea that the Greek public be allowed to vote in a nationwide referendum to accept the existing bailout terms, or make preparations to devolve their economy from the euro back to the drachma. The Greek government has repeatedly said its hands were tied by election promises to reverse austerity programs and pension reform, so a plebiscite may be the only way to break the impasse.
ScotiaMocatta believes that gold is a “cheap safe haven” as overpriced stocks and bonds bubbles continue to deflate.
U.S producer prices fell in April, the third drop in four months. The PPI was down 0.4%, adding more weight on the “don’t raise rates” side of the decision-making scale at the Federal Reserve. Year over year, the drop was a big 1.3%, the worst drop in wholesale prices since 2010. Analysts had expected a +0.2% monthly reading, and a -0.8% yoy.
One bright spot for the U.S. economy this morning is first-time jobless claims, which dropped marginally by 1,000 applications to 264,000 new people seeking unemployment benefits. Analysts had expected a 10,000 count rise, to 275,000.
Wholesale prices in Japan will be released at 7:50pm tonight, New York time, giving us an insight into how the Bank of Japan’s Godzilla-sized money printing operation is faring in slaying the three-headed Ghidorah of a deflationary spiral, shrinking working-age population, and massive debt-to GDP ratio.
Tomorrow, the U.S. will be getting the latest numbers on industrial output, consumer sentiment, and the Empire State Manufacturing Index. Traders are hoping for some good news in the moribund industrial sector, but aren’t holding their breath. Perhaps with the dollar weakening off recent highs, U.S. exports can be revived.