Gold demand exploded Wednesday on news that an independent counsel has been appointed by the Justice Department to oversee the FBI investigation into possible collusion between Donald Trump’s campaign and Russian operatives. Spot gold closed $24.20 higher Wednesday at $1260.90 an ounce, while the stock market saw its largest one-day losses in 8 months.
Gold is seeing some anticipated profit taking after yesterday’s big run-up in prices, using upbeat jobless numbers and an increase in the Philadelphia Federal Reserve’s manufacturing index as the excuse. First-time jobless claims surprised economists by falling by 4,000 applications.
The Philly Fed survey rose to an unexpected 38.8, compared to a reading of 22.0 in April. The surprising jump in manufacturing activity still did not completely erase losses from March and April, but gave hope over economic growth in the Mid-Atlantic states.
US Treasuries are steady this morning, after yesterday’s torrid pace of safe haven demand. That demand saw the yield on the 10-year T-note fall at the fastest pace in 11 months, ending the day 7.8 basis points lower at 2.234%. Bond demand has continued this morning, with the 10-year yield at 2.22% in early New York trading.
On the other side of the coin, stocks were crushed on the latest revelations in the Trump/Russia saga. Both the Dow and the S&P 500 saw their worst one-day losses in 8 months, while the Nasdaq collapsed in its worst day since the Brexit vote to leave the EU last June 23. This was a big reversal of fortunes for the tech-heavy index, which had closed at all-time record highs on both Monday and Tuesday.
The Dow ended the day 372.82 points (1.8%) in the red at 20,606.93. The S&P 500 also closed 1.8% lower, down 43.64 points at 2,357.03. The Nasdaq fared the worst of all, shedding 158.63 points to end 2.6% lower at 6,011.24
The dollar was pummeled yesterday to six-month lows, and has now completely given back its “Trump rally”. The DXY dollar index against a basket of major currencies has lost 2.6% in two weeks.
The weak dollar boosted gold prices even higher than would safe haven demand alone. June gold futures settled $22.30 higher at $1,258.70 an ounce. Silver futures rose 1% to $16.90, while platinum also rose 1% to $946 an ounce. Palladium once again was stuck in a mirror dimension, falling 1.9% to $777 an ounce.
Oil prices also had a double tailwind, as the weaker dollar combined with news that US crude stockpiles have fallen for the sixth week in a row. This allowed June contracts for West Texas Intermediate to climb back above $49 a barrel for the first time this month. July Brent futures gained 1.1% to settle at a three-week high of $52.21 a barrel.
Trump Market Trauma
News that President Trump had pressured FBI Director Comey into dropping the criminal investigation against National Security Advisor Flynn set off a near panic in markets, under assumptions that interfering in an ongoing investigation was obstruction of justice, an impeachable offense.
The conflicting narratives between the White House and the FBI, as well as Trump saying the opposite of what White House spokespersons were telling the media culminated when Assistant Attorney General Rod Rosenstein appointed former FBI Director Robert Mueller as Special Counsel to oversee the investigation over Trump Administration ties to the Russian government.
Things got worse in the Flynn affair this morning, when it was disclosed that Flynn had told the Trump transition team before he was appointed National Security Advisor that he was under investigation for working as a paid lobbyist for the government of Turkey while also working on the Trump campaign.
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