Talk of the troubles that gold has had breaking the $1,200 level are gone like leaves in the wind, as a sudden global meltdown in stocks and commodities has panicked investors fleeing for their financial lives. Gold busted that psychologically important roadblock of $1,200 an ounce early in Asian trading, and just never. looked. back.
Comex gold hit a session high of $1,244.80 in early trading, a jump of fifty dollars from Thursday’s close. Spot gold is up $48 from yesterday’s close. Among other safe haven assets, US Treasuries are seeing heavy demand, with the yield of the 10-year T-note dropping to under 1.6%, last seen in late 2012.
Stampede to Safety
The yen is slicing through resistance levels against the dollar like a samurai sword in a Kurosawa movie to 16-month highs on massive Asian safe haven demand. Even the euro was profiting off a struggling greenback, breaking the 1.13 mark. It seems the dollar, well on its way to the worst week since the Lehman Brothers collapse in 2008, is the only major currency that is not being seen as a safe haven.
German and British bonds are also being bought with both hands by panicked investors, as they shun the sovereign bonds of other European nations. The clamor for Treasuries has driven the yield of longer-dated notes closer to those of short-term notes. Called “flattening the yield curve,” it has traditionally been seen as a sign of a looming recession.
What The Heck Happened?
The JP Morgan trading desk said what is probably on the minds of most investors: “It’s hard to imagine an uglier morning.” Why did the world’s economies implode overnight? It seems that it is a confluence of many individual crises happening at the same time, and pushing global sentiment over a cliff.
In addition to gold, silver rallied over 2.8% Thursday morning to $15.81 per ounce. Spot platinum also added $25 per ounce (+2.7%) to $960/oz.
Energy stocks plummeted further on Thursday while WTI crude prices fell under $27 per barrel. Oil prices were dented by multiple factors, including: a record build-up of U.S. crude inventories; worries about the global energy demand outlook; and a Goldman Sachs forecast for prices remaining low and volatile until the second half of 2016. OPEC’s “Jedi mind tricks on the markets have also been losing their effectiveness.
Worries About Banks
Banks have been the “whipping boys” of Europe, as panicked investors continue to lose faith in the institutions. Bank stocks in Europe are getting crushed again after profit warnings from French bank Societe Generale sparked fresh fears about the health of European banks, who are struggling under the weight of weak growth, low interest rates and fears of rising bad debts.
Shares of French bank Societe Generale fell more than 12%, while giant German financial institution Deutsche Bank dropped more than 7% and Swiss bank UBS dipped nearly 3%. Shares of Credit Suisse, also based in Switzerland, saw its shares hit a 27-year low. Persistently low interest rates have been exacerbated by Europe’s national banks, as well as the European Central Bank, venturing into negative interest rates.
Negative Interest Rates
The Bank of Japan stunned markets last week by introducing negative interest rates. The ECB may be forced to cut rates even lower next month. Now the Swiss are also not ruling out going deeper down the rabbit hole of negative rates. Then, overnight, Sweden’s central bank decided to cut its already-negative benchmark rate even lower. Market turmoil has only been fueled even further by Fed Chair Janet Yellen discussing the legality and likelihood of the Fed using negative rates in her testimony to the House Financial Services Committee on Wednesday.
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