Gold is seeing a moderate bounce this morning in New York, as global shares are weighed down by weak data from China and the EU. The dollar is struggling to recover from yesterday’s sell-off, where it lost more than 1% against a basket of currencies.
Crude oil prices are up nearly 2.5%, while Treasuries are lower, with the yield on the 10-year T-note up 4 basis points this morning to 2.42%. Gold and silver are both up over .5%, while platinum is up nearly 1%.
Yesterday in the Markets
It was a Blue Monday on Wall St., as stocks spent the day in the red for the third day in a row. The DJIA ended in the red for the year, after closing down 0.46%. The dollar lost over 1% as the euro gained almost 1.5%. Despite the falling dollar, crude oil prices were hammered on light volumes, as Iran announced plans to ramp up oil exports the minute sanctions are lifted over its nuclear enrichment program (due by the end of the month.)
European stocks were hit again Monday as well, with the German stock market ending officially in correction (10% lower than the April high) and the Euro Stoxx 600 down .9%.
Treasuries and German bunds stopped bleeding on Monday, and the rest of Europe saw only slight losses. The mood in the bond market wasn’t improved when Ewald Nowotny, president of the Austrian central bank and member of the governing council of the ECB, called rising European bond yields “a success story.”
Gold saw a rebound from session lows to close slightly in the green, up $1.40. Silver did not share in the good news, down 1% to just under $16/oz. Platinum gained $5 to close at $1100/oz.
Factors Affecting Gold Today
Gold’s positive action this morning underscores the fact that, with bonds moving in correlation with stocks, they cannot provide protection from a stock market correction. Gold remains a true safe haven and diversification against systemic equity risks. Bonds show no sign of diverging from equities, as the U.S. agency responsible for monitoring financial markets admits it has no idea what is causing the bond meltdown. it isn’t just Europe and the U.S. bond markets that are suffering. $4.4 billion has been pulled from bonds of emerging market nations in the last month.
It isn’t just the bear market in bonds that’s causing extra attention to be paid to gold. Yesterday, the story of how big corporations are faking profits blasted through the financial news, calling current stock values into question.
Asian investors seem to be taking heed of these facts. Even though the Chinese stock market is red-hot, gold demand in China is setting a new record.
The clock is ticking for Greece’s socialist government. After promising to provide creditors will detailed plans to meet bailout terms last Wednesday, Greece finally submitted two three-page documents today. While there was no possibility that this was a detailed government budget, it only took EU officials a few hours to reject the Greek plan. “What has been submitted is not sufficient to move the process forward,” said one EU official. Another said it was “not sufficient and not acceptable to member states”. Greek prime minister Tsipras said that they would work on addressing some of those concerns, and attempt to have another proposal by tomorrow.
Not only is time running short for Greece, but patience among the nations paying for its bailout is, too. The Italian prime minister told reporters that it was “unthinkable” that Italian taxpayers should pay for a Greek pension system that was better than their own. “In other words, the Tsipras government also needs to pass the reforms: reform of the pension system, reforms to stop tax evasion, reform of the tax system,” he said. “We will do everything to keep Greece in the euro zone … but our patience is running out,” Finnish Finance Minister Alexander Stubb said.
German chancellor Angela Merkel, despite being called “Mrs. Hitler” by the Greek press for months, remains the major reason Greece still has a chance of remaining in the EU. However, she is facing a rebellion in parliament and her own party over her support for Greece, including a widening rift with her influential finance minister.
Greece will have to pay €1.6bn to the IMF and €1.5bn in pensions and wages by the end of the month
Wednesday gives us industrial production in France and the UK, and mortgage applications and crude oil stockpile numbers from the US.