Precious metals continue to trade in a tight range this morning, as a volatile Wall St gives up yesterday's gains and struggles to stay in the green for 2015. A surprise drop in consumer confidence in the US to a four-month low accelerated declines in stocks.
The big news this morning is the US dollar breaking the 100 level on the DXY index for the first time since 2003. This has pushed West Texas Intermediate crude oil under $46 a barrel, and Brent crude under $57. Despite this great strength, spot gold is up $1.30, and COMEX gold contracts are up $2.40.
Yesterday in the Markets
After plunging on Wednesday, stocks staged a considerable recovery on Thursday, nearly making up all of the indices' losses earlier in the week. The precious metals inched higher but ended the trading session mostly flat. After seeing a spike in demand earlier in the week, Treasuries fell back, with 10-year yields easing back above 2.10%.
Factors Affecting Gold Today
Downbeat economic news in the US are affecting stocks. Producer prices unexpectedly fell by a half-percent in February, after falling 0.8% in January. Analysts expected an increase of 0.2%, but instead got the fourth straight month of declines. Consumer confidence took a much larger than expected hit, dropping to 91.2 from 95.4. Wall St had expected a tiny drop to 94.8.
Despite this news, which may give the Fed cover for pushing back an interest rate hike, the dollar continues its march upward. This is fueled by the European Central Bank printing money to buy German and Italian bonds, which is depressing the value of the euro common currency.
Even though the dollar is the strongest it's been in a dozen years, gold has resisted any more downward pressure after dropping to lows for the year last week. Bargain hunting by the Chinese is helping overnight, which is counteracting pressure by paper gold speculation in New York. Gold is actually up 11% for the year in Europe, showing the disconnect between the dollar and the rest of the world's currencies. (Note that Gainesville Coins ships gold and silver to over 40 different foreign nations.)
Speaking of central banks and interest rates, the Russian central bank has cut benchmark rates a full percentage point to 14%, despite an inflation rate that is at 16.7%. The damage to the Russian economy from high interest rates has outweighed the central bank's mandate to control inflation, with Russian GDP projected to drop from between 3.5% to 4% this year. Russian interest rates spiked from 10.5% to 17% in one month in December, as the central bank fought against a 50% devaluation in the ruble caused by international sanctions and collapsing oil prices.
The International Energy Agency says to expect more drops in crude oil prices as the US and OPEC keep pumping. Due to the spring maintenance of US oil refineries as they switch from heating oil to gasoline, crude storage capacity is at its limit. The drop in rig counts in the US is expected to result in lower crude production in the second half of the year, giving refineries the chance to work through the highest glut in supplies in 80 years.
The US is upset with Britain, as the UK signs on to be a founding member of the Chinese-controlled Asian Infrastructure Investment Bank. This multinational bank is seen as a competitor to the IMF and World Bank, which the Chinese see as being under the thumb of the US and Japan. British prime minister David Cameron blew off US objections over the move, saying that it was in the national interests of the UK to be a member of the new international banking agency.
Monday sees the announcement of industrial production data, the Housing Market Index, and the Empire State (New York) Manufacturing Survey in the U.S.
Meantime, abroad, the Bank of Japan holds its monthly policy meeting, while the Royal Bank of Australia will release its meeting minutes for March. In China, adjusted retail sales numbers along with the Producer and Import Price Index will be announced.