Gold Steady as Dollar Gains: Morning Market Update May 27

May 27th, 2015 by

The dollar is continuing its rally in New York this morning, but gold has remained steady since its drop early on Tuesday. The yellow metal is hanging tough at the $1186 support level for a second day.

The weaker euro is helping European stocks shake off any worry over a Greek sovereign debt default, at least for today. Wall St opened higher after suffering the worst day in three weeks yesterday.

Yesterday in the Markets

global-markets-downAlmost every economic report in the U.S. came in better than expected yesterday, but instead of celebrating, stocks tanked as the fear of the Devil an early interest rate hike by the Fed swept through the market, sparking a second day of losses. Recent comments from Fed Chair Janet Yellen that she anticipated the Fed raising rates before the end of the year had primed the pump of panic that was set off by good economic news.

A drop in Apple stock helped pull all three major indices down over 1% in an extremely volatile day of trading. The VIX volatility index blasted up by 20% during the day, the largest one-day jump of the year, to close at “only” a 16% gain.

These are the circumstances that Bank of America analysts warned about in a recent letter to clients, describing the markets as in a “Twilight Zone” and encouraging a higher percentage of assets be held in cash and gold:

“…we continue to advocate higher than normal levels of cash, adding gold and owning volatility in mid 2015. Given extremities of liquidity, profits, technological disruption, regulation, income inequality…potential for a cleansing drop in asset prices cannot be dismissed. Most likely catalysts: Consumer, Rates, A-shares, Speculation, High Yield.”

The dollar, in contrast, loved the idea of an early Fed rate hike, and a swooning euro (due to Greek default fears) was just icing on the cake. The USD hit a 1-month high yesterday, up 1.3% against a basket of currencies.

Crude oil was down as much as 2.5% on Wednesday afternoon, with West Texas Intermediate finishing at a one-month low.

Gold was hammered down $18 an ounce Tuesday, but the support level at $1186 held. Silver and platinum were both down by 2%, while palladium was flat.

grexitOne reason the euro fell so far yesterday was the vote by the ruling council of Greece’s governing party on a pre-emptive national default. The measure failed, 95 to 75. If only 11 more delegates vote “for” next time this is brought up (and it will be brought up again,) a bill will be introduced in the Greek Parliament to declare sovereign default. This will purge Greece from the euro common currency, and possibly the EU itself.

Factors Affecting Gold Today

The dollar is resuming its rally today, as the euro drops to 1.08 versus the greenback. The “Greek situation” is outweighing another increase in German consumer confidence, which edged to another 14-year high. Reports out of Europe are that the Greeks have yet to provide the Troika with a realistic budget, and the consensus is that they will miss yet another deadline set by creditors.

Precious metals are steady in morning trading in New York, as the dollar rally seems to be faltering a bit.  Wall St opened higher and quickly climbed, as investors came out of the gate with bargain hunting in mind after yesterday’s dismal losses.

Saudi airstrikes in Yemen have reportedly killed at least 80 people near the border between the two countries, raising worries about retaliation against the oilfields of the world’s largest petroleum producer. This is giving gold a bit of safe haven support in markets along the Persian Gulf.

 

looking-aheadLooking Ahead

Tomorrow is a fairly active day for economic news. In Europe, we have GDP figures from Britain, and consumer confidence for the EU as a whole. In the U.S., we have first-time jobless claims, which will probably be a market mover if it comes in unexpectedly lower or higher. Also on the docket is U.S. petroleum stockpiles and pending sales of existing homes.

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