Gold prices are sharply up on central bank inaction and a flight to safety. Prices broke above the important $1,300 mark overseas, shortly after midnight Eastern Time. Two hours later, prices jumped to take out the $1,308 mark, which many traders believe is necessary for gold to make another run upward towards $1,400. Gold prices have held above $1,308 into the New York open, after touching as high as $1,316 an ounce. These prices reflect the pervasive risk-off sentiment in global markets.
Gold hit a two-year high in the US and India, and a three-year high in the UK and EU, as the pound sterling and euro continue to fall on Brexit fears. At 10am Eastern Time, spot gold was up $18.50 at $1,310.00 an ounce, while spot silver was up 21 cents to $17.70 an ounce. While this marks the seventh straight trading day of gains for bullion, Wall St has fallen for five consecutive sessions.
Today’s technical numbers for gold have $1,310 as first resistance, with the next barrier at $1,317. The previously stubborn resistance level of $1,300 is now transformed into support, with yesterday’s spot close of $1,291 at second support.
Stocks and oil futures continue to sell off this morning. Crude prices are experiencing their sixth straight day of declines to lows not seen in over three weeks. Just a week ago, prices for Brent crude hit an 8-month high. More equities traders are reaching the conclusion that the effects of a Brexit are literally unknowable, except that it will be bad in the short term. China is selling off its US stock holdings but for reasons unrelated to the Brexit. Beijing needs to replenish its foreign currency reserves, and it is best to sell them before they drop any further.
In currency markets, the yen jumped to a 21-month high against the dollar, much to the chagrin of Bank of Japan governor Haruhika Kuroda. The BoJ followed the Fed’s lead of standing pat on interest rates and stimulus measures. The Bank of England (BoE) and Swiss National Bank (SNB) followed suit.
Despite the drubbing the dollar received at the hands of the yen, it gained against the pound sterling and euro. Although government bonds in Spain, Italy, and Greece saw rising yields as investors dumped Southern European debt, bonds in Japan and Germany, as well as U.K. Gilts all experienced record-low yields.
In economic data, the Consumer Price Index (CPI) rose 0.2% while weekly first-time jobless claims were slightly higher than expected at 277,000. Core inflation (with volatile food and energy prices stripped out) clocked in at 2.2% in May, though this measure of inflation is not given as much weight by the Fed.
Gold futures closed marginally higher at $1,288.30 at 2pm to extend its rally to six days, right before the release of the Fed policy statement. Immediately after the statement, gold futures hit $1,293 an ounce in after-hours trading.
Spot gold ended the day with a $6.00 gain, closing at $1291.50. Prices hit a high of $1,297.90, but faded slightly before it could hit the magic $1,300 mark.
Stocks were looking to hold on to modest gains Wednesday, but were absolutely crushed right before the markets closed. This extended Wall St.’s losing streak to five days. The Dow ended down 30 points, the S&P down 3.5 points, and the Nasdaq losing 8.6 points.
The Federal Reserve acted as expected Wednesday and declined to raise interest rates. The infamous “dot plot” showed that six Fed officials saw only one rate hike this year, up from one in March. This dampened positive expectations for the US economy going forward.
Bonds got a lift from the Fed, as demand pushed yields on the 10-year T-note to 1.596%, the lowest since November 2012.
The dollar and gold also acted as expected, as the former fell and the latter rose. The dollar fell to a more than 2-year low against the yen, while the euro gained on both the yen and the greenback. Even the battered British pound sterling managed gains against the USD. The DXY dollar index of a basket of currencies fell 0.3% to 94.606.
Oil futures had fallen back to unchanged before the release of the FOMC policy statement, but quickly dropped afterward, as traders began looking towards the UK referendum in eight days. Word that Canada’s oil production should start to recover soon eliminated any bullishness from the report that US crude stockpiles had fallen modestly. July WTI contracts closed down 1% to $48.01, but doubled that loss after the close. August Brent futures lost 1.7% to $48.97 a barrel, but widened losses to 2.57% in after-hours trading.
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