Gold prices were hit in late-morning trading, after opening slightly under yesterday’s close. The dollar is also down after staging a moderate rally. Gold was as high as $1,285 an ounce in Asia overnight. before settling in the mid-$1,260s range in London.
Stock traders woke up this morning, realizing that the stimulus measures announced yesterday are a really big deal after all. Yesterday, markets had focused on ECB president Mario Draghi saying that this was the last cut in interest rates, and panicked at the idea.
April gold futures closed up $15.40 (1.22%) to settle at $1,272.80 yesterday. Spot gold traded in a $30 range yesterday before closing at $1,272.10, only $2 off the session high, This marked a $19.20 (1.53%) gain for the spot gold price.
We’re looking at $1,265 as first support this morning, with $1.259 the next backstop. First resistance is yesterday’s close at $1,272, with $1,276 the next line in the sand. $1,280 will be the next major hurdle if the dollar reverses this morning’s rally.
MarketWatch this morning quotes Bank of America analysts as noting that gold is the investor’s haven right now. “ECB gave all they had today (rate cuts/QE/credit purchases), but price action screamed ‘Quantitative Failure’ … gold and volatility outperformed.” Returning to that theme later in their report, they emphasized that the central banks have run out of options when it comes to (negative) interest rates. “ECB done, BOJ has nothing in the tank, and any U.S. macro strength will elicit Fed rate hike expectations (the Fed wants to tighten),”
The European Central Bank whipsawed markets yesterday, first by giving Euro stocks more than they had dared hope for, then crushed by ECB president Mario Draghi saying this was the last punchbowl for the party. Stocks and currencies on both sides of the Atlantic gyrated crazily, weighed to the downside by a drop in oil prices. US markets basically closed flat after all the excitement.
Equities have decided this morning that the ECB’s moves yesterday were actually pretty darned good, and Draghi will doubtlessly go back on his declaration that this was the last big stimulus, if the EU economy falters.
Crude prices were hit yesterday when traders had their latest dream of OPEC production cuts dashed. Sentiment also suffered from the realization that US oil stockpiles are set to increase their record-high levels as spring maintenance closes many refineries.
This morning, a report by the International Energy Agency declaring that oil prices may have finally hit bottom as Iran struggles to boost production has sent oil prices up over 2% to erase yesterday’s gains.
Given the tight correlation that the stock market has to crude prices this year (energy stocks have been one of the major influences on the market,) higher oil prices have meant higher stock prices, and vice versa.
Tuesday marks the start of the March FOMC policy meeting. While the odds this morning of a March rate hike stand at 0% according to the Fed funds futures rate, odds for an April hike are up to 20%.
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