The precious metals opened in the red again this morning as the dollar remains robust and tempered optimism about Greece abound. Though the DXY fell about 0.33% to 96.5 this morning, the yen and the pound sterling both lost ground against the greenback. As the gold bears have wrested control of the market again, the metals look ready to extend their losses throughout the week before bouncing back after the Greek situation comes into a bit better clarity. With Asian markets deeply in the red and Europe moving into positive territory, U.S. indices opened more than 1% lower this morning.
Yesterday in the Markets
The precious metals fell dramatically on a mix of Greek optimism and dollar strength. Palladium and silver led the slide at about 4.5% lower each, while gold lost $15 (-1.25%) to a 15-week low of about $1,154/oz. Platinum fell more than 2% to $1,043/oz, again widening its gap beyond $100 per ounce with spot gold. Treasuries saw demand, sending 10-year yields surging to 2.19% before settling back at 2.25%. The euro fell to a 5-week low before returning to about $1.10. After riding a recent slump, crude oil prices rose yesterday, with WTI adding 0.8% and Brent advancing more than 1.5%.
Factors Affecting Gold Today
Some have been surprised that with all the uncertainty in the markets, gold and the precious metals would be losing ground. In fact, a customer asked yesterday about the plunge in the metals prices, offering, “Is it Greece?” Really, if Greece was the driving market force, the opposite would’ve happened.
The metals are getting battered for the second straight session precisely because optimism over the Greeks possibly securing a deal with their creditors has been spreading. Not only has the Greek government appointed a new finance minister to handle the negotiations, but a group led by France, Italy, the U.S., and the IMF are now softening their tone on the crisis by calling for some form of debt relief for the Greeks. Yesterday, eurozone leaders gave Greece a Sunday deadline for submitting new reform proposals and a loan request. Renewed confidence that some sort of deal will be struck, or that the ramifications from a “Grexit” will be well-contained, is helping place downward pressure on gold and the other metals.
Beyond improvement on the Greek front, investors have also yet to seek safe haven from the progressive collapse of the Chinese equities market. After it seemed that the Communist Party may succeed in staving off any more of a downturn after mainland shares lost more than $3 trillion in value, today saw the Shanghai Composite slump another 5.9%, dragging Hong Kong down 5.84% with it.
Average investors—often referred to as “retail investors” as opposed to institutional investors—who sunk their life savings into Chinese stocks with the promise of fantastic returns are now seeing their investments evaporate. Now, the government has stepped in and told major shareholders that they cannot sell their stakes for at least 6 months. The world markets have had remarkably little spillover from the Chinese meltdown, but this can only last so long, as Japan’s Nikkei 225 lost 3.14% while Taiwan’s TSEC index lost 2.96%.
The minutes from last month’s FOMC meeting will be released this afternoon, which will most likely not provide any support for precious metals prices. As encouraging economic data continues to roll of the presses and the Americas remain insulated from the mayhem in Europe and Asia, expect the metals to continue to fall as the Fed really has no choice but to continue to trumpet a September rate hike. Gold has a good chance to rally once rates lift off, but until then, we must do the same as Chair Yellen and simply wait and see.
Weekly jobless claims will be announced tomorrow morning, while the Fed Balance Sheet and the most current money supply figures will be released around 4:30 PM EST.