Gold prices are jumping today on renewed fears over the future of the European Union. A Dutch referendum to approve closer ties between the EU and Ukraine failed by a margin of nearly 2 to 1. Seen as a victory for Euroskeptics in the Netherlands, the vote stoked fears that the upcoming Brexit vote may be just the first step in the dissolution of the European Union.
Gold was up nearly $20 an ounce in early New York trading, even as first-time jobless claims for last week came in lower than expected. Oil futures, which were up 5% yesterday, are giving up gains. WTI was down 1.6% and Brent down 1.9% this morning in New York.
June gold settled at $1,223.80, down $5.80. Spot gold closed at $1,222.30, down $8.90, in the middle of the day's range.
Today, we expect to see support at $1,234, then $1,228. First resistance at the morning high of $1,244, with the next hurdle at $1,249.
EU Fears Grow
European Central Bank chief economist Peter Praet revealed that worries are growing at the central bank over the effects of long-term negative interest rates, even as the ECB cut rates deeper into negative territory last month. "The persistence of negative rates over time two, three years is something that becomes quite worrisome if you think about the implications for business models," he said.
Ruling out the use of "helicopter money," he said that the ECB stood ready to increase quantitative easing, and even cut interest rates deeper into the negative, if the economy continues to falter. Despite all the ECB's efforts, the euro refuses to weaken enough to boost inflation.
The blow of the Dutch referendum to EU solidarity has Euroskeptic Dutch opposition leader Geert Wilders tweeted “If two-thirds of the voters say no, that is a vote of no confidence by the people against the elite from Brussels and The Hague.” following the outcome of the vote.
Adding to EU fears, it is expected that the "Leave" side in the Brexit campaign will likely be energized by the victory of Dutch Euroskeptics in the referendum.
Another strain on relations between EU member states is the resurgent crisis over the Greek bailout. The IMF refuses to sign on to an agreement that doesn't provide with enough debt forgiveness to get the debt load to manageable levels. For its part, the German Bundestag refuses to accept debt forgiveness, and also demands IMF involvement in any further Greek bailouts.
A rally in oil futures yesterday probably had more to do with a positive day on Wall St than the FOMC minutes did. Energy stocks helped push the market higher, as did healthcare stocks after the Pfizer/Allergan merger was called off. Oil continues to lead stocks around by the nose today, as lower crude prices drag equities lower. Prices are also being affected by doubts the Feb is harboring over its ability to prevent a global economic slowdown from dragging the US economy down with it.
The CMEgroup FedWatch algorithm this morning is giving a 1% chance of a rate hike at the Fed's next policy meeting in three weeks. The chances of a June rate hike have dropped to 20%, and odds don't get over 50% until December, This is an illustration that the markets refuse to believe the Fed when it says at least two rate hikes are planned this year.
A deeper drop than expected in first-time jobless claims has done little to help either Wall St or dollar bulls Claims fell by 9,000 applications to 267,000. Analysts expected a print of 279,000. Combined with the rise in the labor participation rate, more people are seeking jobs. This will result in lower pressure on wages, something the Fed wishes would increase.
Events we'll be watching tomorrow include the reaction to Fed Chair Janet Yellen's talk at tonight's meeting of present and former Federal Reserves chairmen, and the effects of the Baker Hughes rig count on oil prices.
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