Amid a flurry of economic data out of Europe this morning, spot gold remained stuck at a four-week low around $1,273/oz on Friday. There is often a distinct pattern of seasonality in the gold market, and year-end is typically a time when investors are cycling their portfolios into stocks in anticipation of a “Santa Claus rally” rather than buying safe havens. FOMO (fear of missing out) is a powerful animating force on Wall St, particularly as we approach January 1st.
Spot silver declined by 16¢ (-1.0%) to $16.25/oz, showing again that even when the argent metal trends in the same direction as its cousin gold, it is typically the more volatile of the two precious metals. Platinum prices slipped by a similar margin, losing $8 per ounce (-0.85%) to $932/oz. Palladium actually gained 1% to trade at $1,010/oz.
Speaking of FOMO, the millions of new speculators pouring into the Bitcoin market are celebrating the move by U.S. regulators to approve trading in Bitcoin futures. This is seen as a major step toward formally regulating the crypto market so that banks and financials are reassured that there is some form of oversight. However, this seems to contradict the idea of decentralization at the heart of the blockchain technology.
Nonetheless, as news about Bitcoin and similar “alt-coins” floods the financial news, there is a growing chorus of voices who are pointing out the systemic risk that an overflowing market for Bitcoin could pose. There’s a distinct possibility that any development that causes BTC prices to pull back significantly could spark a “run on the bank,” so to speak, of people selling off their Bitcoins for cash. The chances of such a wave of selling are heightened by the fact that so many speculators who are eagerly buying Bitcoin now have no understanding of what it is. There’s also the looming possibility that the IRS could impose burdensome rules about how gains from owning or trading cryptocurrencies are taxed.
Meanwhile, there are somewhat analogous concerns bubbling up (no pun intended) in the stock market. Some analysts believe that the current bull run is “getting stretched,” as equities in the U.S. and around the globe continue to rally higher absent any compelling reason. One would assume that by now much of the fundamental drivers for stocks—like improving economic conditions, strong quarterly earnings, and expected corporate tax cuts—are all already priced in to the market’s high valuations.
Wall St opened modestly lower on Friday after progress on the Senate’s version of the tax bill hit a snag yesterday. Markets in the U.S. have proven especially sensitive to developments in the tax reform debate, which is another sign that the march higher for stocks is vulnerable to a momentum shift if things don’t go according to plan on Capitol Hill.
Moreover, lawmakers’ attention could be diverted by the numerous other battles taking place on the sidelines in Washington, D.C. Unless Congress reaches a deal to authorize new spending by December 8th (one week from today), there is the distinct possibility of another government shutdown. The last time the federal government closed its doors due to a spending squabble was in 2013. On top of that, souring relations between the State Department and the Oval Office could mean that the U.S. has a new Secretary of State by the time traders return on Monday. It’s no secret that Secretary Tillerson and President Trump have frequently not seen eye-to-eye from the start of the new administration.
The leading economic data reported on Friday was the purchasing managers index (PMI) in a number of developed countries. The manufacturing PMI in the eurozone hit its highest level since 2000, while PMI in the U.K. also saw its highest reading since 2013. This helped European stocks recover from earlier losses that saw the FTSE 100 in London and the DAX in Germany each notch fresh two-month lows. PMI data in the U.S. is due later this morning.
Shares in Asia were mixed again in a repeat performance of Thursday’s session: Shanghai and Hong Kong fell but Japanese indices were up. In the bond market, U.S. Treasurys saw some demand, sending 10-year yields back down two basis points to below 2.40%.
Aside from watching to see if Congress averts a government shutdown, investors will also be keyed into the monthly nonfarm payrolls data from the Department of Labor next Friday.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.