Gold prices saw their worst single-day drop since December 2013 yesterday, as a cascading series of events drove prices down by more than $40 an ounce. Gold closed at its lowest mark since the Brexit vote.
Nearly every other market was also down on the barrage of rumors and reports on both sides of the Atlantic as well. In fact, it was a bad day for everyone but the dollar bulls.
Gold attempted to rally this morning on news that the ADP private sector payrolls report showed fewer new jobs than expected, but traders quickly sold into the rally before it could gather steam. Spot gold is back to trading just a couple of dollars above Tuesday's close, where it ended 3.26% (-$42.80) lower. Spot silver prices are marginally higher this morning, after losing 5.38% (-$1.01) yesterday.
Yesterday's bloodbath in the gold pits was exacerbated by the actions of large market players. Gold was initially down on fears of a sudden rise in interest rates. This pushed prices low enough to trigger sell stops, which pushed prices low enough to trigger more sell stops. Allegedly, when big speculative players saw this, they sold heavily into the market to drive prices much lower, increasing the cascade effect before covering their gold shorts at a large profit.
At 10am in New York, spot gold is trading at $1,269.40 per ounce, up $1.00. Spot silver is at $17.78, flat for the day after yesterday's drubbing.
European markets were already anxious over UK Prime Minister Theresa May's unexpected announcement that Brexit negotiations will begin in March, and that she would be pressing for a "hard" Brexit — severing all ties with the EU.
Once rumors hit that the European Central Bank may start winding down its €80-billion-a-month bond purchasing (money printing) program early, losses accelerated. The British pound dived to its lowest mark since 1985, while the euro also fell. The great fall in the pound sent UK stocks higher, and helped the US dollar post its best daily gain in over two weeks.
US markets suffered a severe rate hike scare Tuesday, as a barrage of statements by senior Federal Reserve officials drove the odds of a December interest rate hike to 63%. Cleveland Fed president Loretta Mester shocked the markets yesterday by pressing the case for a November rate hike — only six days before the Presidential election. Richmond Fed president Jeffrey Lacker, perhaps the most hawkish Fed among his peers, told reporters yesterday that, had he been voting this year, he would have dissented in favor of a September rate hike. Even Boston Fed president Eric Rosengren, a longtime dove, came out yesterday advocating a rate hike.
Wall St Wallows
US stocks struggled early in the day Tuesday, but were relentlessly pulled under by fears of Brexit and interest rate hikes by the Fed. Uncertainty and confusion over the tight presidential race only jangled nerves further. The Dow lost over 85 points, the S&P shed nearly 11 points, and the Nasdaq dropped more than 11 points.
The only major currency to have a good day yesterday was the US dollar. Higher interest rates benefit the dollar (and raises profits for banks). The dollar was sharply higher against its three major peers, the pound, euro, and yen.
Today's ADP private sector payrolls report showed the US economy created 154,000 new jobs in September, compared to a downward revision to 175,000 new jobs in August. While the ADP payrolls report does not include local, state, or federal jobs, economists use it as a bellwether for the all-important non-farm payrolls report that comes out two days later.
With all the anxiety and confusion roiling the markets this week, a surge in defensive plays should be expected for the rest of the week.
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