Headlines were dominated by gold’s dramatic $35 drop on Monday, with even the mainstream financial news taking notice. Britain’s Financial Times touted “gold bugs squashed,” assuming that one particularly painful trading day somehow invalidates the entire precious metals market, along with all the rationales for holding physical metals. (We know this is hardly the case.)
While the financial pundits have a field day with bashing gold, the precious metals looked to rebound this morning, with spot prices advancing by about 0.5% for gold to $1,105/oz. Silver gained 1% to just under $14.95/oz, and platinum was 0.75% higher at $990/oz. Palladium, always the oddball, led the way 1.8% higher at $619/oz. Nonetheless, the drag on the precious metals is unlikely to abate in the coming days as a confluence of bearish influences take hold: 1) everyone’s worries about the Fed raising rates (and boosting the dollar); 2) a momentary resolution of international conflicts (Greece, Iran) is peeling away safe haven demand; and of course 3) the seasonal summer downturn for commodities in general. This should provide a great buying opportunity for value-minded investors who understand the benefit of holding bullion.
Yesterday in the Markets
Gold’s steep drop on Monday was the major headline across all of the financial news media, as the MSM touted that gold had “lost its luster,” was “shunned,” or any other colorful way to explain why the metal slumped to a 5-year low. Really, the 3-way combination of 1) a potentially imminent rate hike from the Fed, 2) a large fund selling high volumes of gold overnight in China, and 3) the precious metals’ seasonal summer slump contributed to the dramatic $35 loss for the yellow metal yesterday. The other precious metals also suffered, with silver and platinum sinking to 6-year lows and palladium hitting its lowest levels since 2012.
Factors Affecting Gold Today
As second-quarter corporate earnings continue to be released this week, with Apple announcing its performance after Google posted fantastic Q2 numbers, expect the stock markets to trend somewhat higher if the earnings reports are generally good, especially for big firms like Microsoft, Verizon, Caterpillar, and Halliburton. Even as the markets seemed to have emerged from some imagined low-point, equities remain overvalued: both the S&P 500 and Nasdaq have been trading at or near all-time highs in what most analysts agree is an overcrowded stock market. One need only take a look at the Shanghai Composite’s month-long roller coast ride to see where things are headed.
With the broader commodities sector (in addition to the precious metals) taking a beating on Monday, investor attention will likely turn to stocks and—with risk abating in Europe—the global bond market. Both crude oil benchmarks were about 0.25% higher at today’s open.
Alhough European indices were trading in negative territory this morning, the euro gained slightly against the dollar to about $1.09, and the yen also made slight gains against the Greenback. Shares were up across Asia, with indices in Japan, China, and Honk Kong all 0.5% to 1% higher overnight. Though 10-year Treasuries have been seeing demand lately, yields were up to 2.40%, perhaps indicating that government bonds have room to run.
In addition to the EIA petroleum status report, the FHFA House Price index and existing home sales will give a better picture of the U.S. housing market.