This morning's open spelled another day spent in the red for gold and silver, as the precious metals continue to notch fresh multi-year lows. In addition to the potential rate hike from the Fed and the easing of risk on the international stage, the technical pressures on the metals have come from traditional sources: the value of the dollar and crude oil prices. As a commodity, gold often tracks with crude prices, and as a store of value, gold denominated in USD loses its relative value when the Greenback is particularly strong. Clearly, the dollar's nearly year-long bear rally and oil's 50% drop from last summer are finally having their expected effect on the precious metals. Gold futures pointed even lower than this morning's spot price at $1,084/oz, a 5-year low. Silver slumped to another 6-year low at $14.60/oz. Meanwhile, the Platinum Group metals were mostly flat.
Yesterday in the Markets
Wall St dropped by Thursday's close on weaker earnings report from large corporate players like Caterpillar and Microsoft; the major indices lost between 0.50% and 0.67%. This was despite weekly jobless claims hitting at 42-year low. The consumer sentiment gauge registered a 5-week low. Although the metals saw a bounce in the morning as the dollar fell back slightly, each still ended the day down in negative territory yet again.
Factors Affecting Gold Today
It's not only that the strong dollar and weak oil prices have been contributing to the precious metals' slide the past two weeks; on top of that, these factors seem to be firmly in place in the medium-term, through the rest of 2015. The dollar will undoubtedly rise whenever the Fed moves on normalizing the federal funds rate, and crude oil is poised to perhaps drop further as global production remains high—and considerable Iranian reserves should being hitting the open market soon, too. The dollar was steady at 97.5 on the DXY this morning, while the crude benchmarks were mixed: Brent crude remained flat at $55.25/bbl, and WTI crude was up 1% to about $49/bbl. The former has still lost 13% this far in the month, its worst since January.
With gold prices continuing to sink near important support levels at $1,080/oz, demand for physical bullion has experienced a windfall. With a week to go in July, monthly sales of Gold Eagles are already at their highest since April 2013, with 118,500 troy oz in coins being purchased from the U.S. Mint over about the last 3 weeks. Investors may be stocking up on physical gold not only because of the buying opportunity at depressed prices, but also as an alternative to buying government bonds: a lawsuit has been levied against a large group of the largest players in the Treasuries market for colluding to manipulate prices. Not only have the traditionally "safe" U.S. bonds been volatile and subject to supply shortfalls, but the news of this scandal can only serve to hurt the credibility of these debt instruments as safe hedges or investment vehicles, especially in comparison to the precious metals.
Stock futures were moving higher at this morning's open thanks to earnings reports from American Airlines and Amazon that blew away what most analysts and investors were expecting. The markets' momentum as we end the week will be determined in large part by new home sales numbers and the release of the PMI manufacturing index this morning.
Shares in Europe moved sideways in early trading today while Asia traded about 1% lower across the region. Concerns about the pace of growth in the eurozone, which is still picking up the shattered pieces of Pan-European unity that were smashed during the Greek fiasco, are also holding down investment inflows and market sentiment; one overlooked influence on the metal prices (at least over the short term) is that any downturn in Asia and Europe is frequently accompanied by a sell-off of large paper gold holdings by funds that are heavily invested in those markets in order to cover their losses. Even worse, a 15-month low for measures of Chinese factory output indicated a contraction for the sector, adding to long-held fears that an economic slowdown in China could roil international markets.
The Dallas Fed manufacturing survey comes out Monday morning, but the latest durable goods orders data will be the big news of the day.