After a wave of selling pressure last week, the gold price appears to have stabilized, consolidating right around its key support level of $1,087/oz. Expect some light trading due to the Veterans Day holiday today—and be sure to take a moment to salute our brave men and women of service!
The other precious metals fell into the red on Wednesday morning: silver was about 0.5% lower, approaching $14.40/oz, while platinum (-1.2%) and palladium (-3.2%) each sank sharply lower.
In observance of Veterans Day, banks, posts offices, and other government services are closed today. The trading markets are open, however.
Both the Dow Jones and the S&P 500 closed just barely in the black on Tuesday, snapping their prolonged losing streak. Meantime, the Nasdaq still lagged behind thanks to precipitous losses by bellwether tech company Apple Inc. (NASDAQ:AAPL), which lost about 4% on the day.
Treasurys also broke their string of losses with a positive close (i.e. yields down) on the heels of a strong auction of 10-year T-notes. In the currency markets, as the euro continues to fall in anticipation of more stimulus from the ECB, this drives the dollar the higher—and gold lower.
With spot gold continuing to hover around support at $1,087/oz for the third consecutive trading day, it's beginning to appear more and more that the December rate hike is already being priced in. This is what we'd expect as the gold price consolidates.
There's been weaker-than-expected gold buying in the major overseas markets of China and India throughout this year. Without a doubt, even modest declines in gold demand from these countries—far and away the world's two largest markets for gold bullion—can have a profound impact on trading. Chinese demand has been subdued thanks to a slowing economy and unpredictable stock market, while India's lack of seasonal rains is literally taking rupees out of the pockets of rural communities—money that would undoubtedly have been spent on gold.
Despite these setbacks, there is some optimism that gold demand from the East will pick up before the year is over. Lower gold prices are enticing to buyers in Shanghai and Hong Kong, and we could see an explosion of bullion sales if spot prices approach $1,000 per ounce. Meanwhile, in addition to today being Veterans Day, it is also the third day of India's traditional Diwali festival. (The first day of the five-day festival, which began Monday, is known as Dhanteras.) Not only is this probably the biggest holiday celebration of the year for Hindus all over the world, it is customarily accompanied by widespread gold buying, as this is seen as the most auspicious time to give gifts of precious metals.
According to analysts at both HSBC (U.K.) and Commerzbank (Germany), even in spite of the other factors weighing on the gold price, we could see stronger demand in China and India thanks to these depressed prices.
Elsewhere abroad, Japan is joining India in the difficult task of stamping out gold smuggling. In a scheme to avoid taxes, members of the well-known Yamaguchi-gumi gang have been caught sneaking gold bullion into the country after importing it through Hong Kong, where there is no consumption tax on the metal. Tokyo's Finance Ministry reports that it has handled 177 gold smuggling cases in the last year, totaling an estimated 700 kilos of gold bullion worth 3 billion yen (over $24 million).
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