Gold prices are modestly higher this morning, after hitting an eight-week high near $1,210 an ounce overnight. Volumes are light today, as US markets are closed for the Martin Luther King Jr. holiday. Both spot gold and February COMEX gold futures are trading $7 an ounce higher in early trading. All other precious metals are trading flat on the spot market. Silver is around $16.81, platinum is at $981.00, and palladium is trading near $748.00.
Trading interest in the precious metals sector is counteracting the drag from a moderately US dollar. Gold demand has increased on geopolitical uncertainties in Europe, the US, and China. British Prime Minister Theresa May is scheduled to speak tomorrow on the government's plans for leaving the European Union. Recent quotes have her advocating a "hard Brexit." This means putting immigration control and bilateral trade deals over attempting to stay in the European common market.
The British pound was hit hard this morning, pushed below $1.20 to the US dollar at one point. This is responsible for a large part of today's gains for the DXY dollar index, which measures the US greenback against a weighted basket of foreign currencies.
Markets are pulling back into defensive mode, as remarks from President-elect Donald Trump reverberate though Europe. He called the NATO defensive alliance "obsolete," saying that it had not adjusted to the threat of international terrorism. He also made an issue of most NATO allies not contributing their fair share in the common defense, content to let the US carry the burden while they use their money on domestic spending instead.
Trump criticized NATO countries for getting a free ride while the US pays to protect them on the campaign trail as well. This may be the only issue that Trump and Obama agree on. Obama had also been pushing NATO countries to step up in providing their own defense.
The 1949 NATO Treaty stipulates that all member nations spend at least 2% of GDP on military defense. Of the present 28 members, only five meet their treaty obligations: The US, UK, Poland, Greece, and Estonia. No major Western European nation lives up to their treaty obligations.
Oil prices are oscillating above and below unchanged, as American drillers ramp up shale production. This increase in global supply is blunting the effectiveness of the "grand bargain" between OPEC and major non-OPEC oil producers to cut production in order to support higher oil prices. Oil futures fell 3% for the week last week, for the worst weekly performance in two months. This was despite the active US oil rig count falling by 7 to 522. This is the first time in eleven weeks that the oil rig count has not increased.
The Treasury markets are also closed today for the Martin Luther King Jr. holiday, but managed to record fourth weekly drop in yields on Friday. (As bond demand/prices rise, yields drop.)
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