Gold saw big gains in Europe, as people wake up to the fact that there will be no Greek bailout before June 30th. Greek negotiators are AWOL, and prime minister Tsipras is wining and dining in Moscow.
The dollar is markedly weaker this morning, as more analysts decide the Fed meeting yesterday signaled that a September rate hike is off the table. A surge in the British pound to 7-month highs put further pressure on the greenback, lifting crude oil prices.
Yesterday in the Markets
The market-moving news yesterday was of course the Federal Reserve Open Market Committee (FOMC) meeting, While saying that “economic activity has been expanding moderately”, the Fed lowered its GDP forecast for 2015 to the 1.8% – 2.0% range.
The dollar dropped, gold spiked, and stocks surged on the news. The British pound hit a high for the year against the dollar, as it is once again a race to see who raises rates from near-zero levels first: the U.S. or the U.K.
While records show that 15 of the 17 FOMC participants want the first rate hike to occur this year, five of the 15 only want one rate hike in 2015. Fed Chair Janet Yellen said that the decision on the timing of the first rate hike will be handled on a “meeting by meeting” basis.
Stocks were unable to ride their “Yellen High” into the close, slipping downwards to end only marginally higher. Crude oil, which had been hammered by an earlier report that gasoline stockpiles had unexpectedly increased, rode the dollar weakness after the FOMC meeting to wipe out all but a nickel of the day’s losses.
Gold also ramped up from early losses to close at $1,185.10, a gain of $3.60. Silver was up 11 cents to $16.12, platinum was flat, but palladium took a $10 shot to the chops to close at $721 and ounce.
Factors Affecting Gold Today
After sleeping on it, Wall St. analysts have decided that yesterday’s FOMC meeting statement and Chairperson Janet Yellen’s press conference were more dovish than initially thought. Goldman Sachs this morning abandoned its call for a September rate hike, saying that December was more likely to be the first, rather than the second rate hike.
Gold hit a three-week high this morning on the interest rate outlook in the U.S. and safe haven demand over the deepening Greek default crisis. Incendiary Greek finance minister Yanis Varoufakis proclaimed that the socialist government in Athens would not be putting forth any more proposals, as the clock runs down of unlocking the last €7.2 billion in bailout money. Prime Minister Alexi Tsipras is in Moscow, meeting with Russian president Vladimir Putin regarding economic cooperation.
IMF president Christine Lagarde this morning gave Greece a hard deadline, saying there would be no grace period if the June 30th bailout payment was missed. German chancellor Angela Merkel publicly shamed the Greek ruling party, noting that Ireland, Spain, and Portugal all completed economic reforms successfully and emerged from their bailouts “standing on their own two feet.” The ruling Syriza party in Greece doesn’t seem to care, as their actions are either aimed at forcing creditors to capitulate, or playing for time until the present bailout terms expire on June 30th in order to start new negotiations with no preconditions.
The euro jumped to over 1.14 against the dollar today, while much better than expected retail sales in the UK saw the pound sterling jump to 1.59 against the dollar.
First-time jobless claims in the U.S. dropped by 12,000, as 267,000 new applications for unemployment benefits were filed. Rising gas prices last month pushed consumer prices in May to the largest one-month gain in over two years, up 0.4% compared to April’s 0.1%. The year over year inflation rate for May was flat, compared to a -0.2% in April. Core CPI for May, which excludes energy and food prices, was barely up, gaining only 0.1% compared to 0.3% in April, showing the effect of the strong dollar last month.
Chinese stocks were down sharply again today, as the growing number of warnings of a Shanghia stock bubble start sinking in.
Tomorrow is quadruple witching hour, so watch for extra volatility in the markets.
Analysts will be watching the Chinese stock market for further losses, while more traders get into defensive positions over an increasingly likely Greek sovereign default.
Also watch for statements from various Fed officials from now into the weekend, as they attempt to sway markets into the desired direction.