Gold, silver, and platinum all rose sharply early on Friday morning despite a continued rally for the stock market, which also opened in the green. The precious metals were helped by a rebound in crude oil prices, as both benchmarks were up 68 cents by 9:30 EST. The dollar was slightly stronger while U.S. Treasuries were mostly flat.
With the holiday shopping season nearing its end, the markets are seeing a good deal of tax loss selling, where traders and investors sell certain securities at a loss in order to offset their capital gains liability. With the thin holiday volumes, this has the potential to move the markets one way or the other before the end of the year.
Yesterday in the Markets
The precious metals were all modestly lower on Wednesday, with palladium bringing up the rear, losing about 1%. The metals tracked with crude oil, as both benchmarks slid another 2% on what has become a see-saw pattern of alternating days in the green and the red. U.S. stock indices were all up about half a percentage point before slipping back to near unchanged when a sell-off in the last 5 minutes of trading erased the day's previous gains before markets closed early at 1 pm. The effect was rather pronounced due to the low volume of trades occurring on Christmas Eve.
Factors Affecting Gold Today
With the U.S. financial markets thus far insulated from economic weakness around the globe, the strongest drivers for gold will likely be found in the geopolitical sphere. In addition to a general concern over slowing economic growth in Europe and Asia, investors can specifically key in to an expansion of stimulus programs by the European Central Bank, the Bank of Japan, and the People's Bank of China.
Consumer inflation in Japan slowed to just 0.7% in November, posing a challenge for Prime Minister Abe in his efforts to kick-start the world's third-largest economy. Japan is also seeing a decline in factory orders, leading to the sharpest drop in inflation-adjusted wage growth in five years. Japan has been the most active participant in monetary stimulus packages under Abe, and has probably seen the worst results among its peers.
Meanwhile, China's Shanghai index has been on the rise in response to the central bank's plan to relax rules on certain lending requirements for banks. The expectation of such stimulus measures sent the Shanghai Composite index on a two-day rally that saw it add over 3% yesterday and more than 2.5% again so far today.
Both developments in Japan and China are likely positive for gold. Moreover, the precious metals may get a bump on concerns over Standard & Poor's sticky settlement with the SEC; the commission is investigating the credit rating agency over how it graded certain securities following the financial crisis. Speculation is that S&P could pay fines surpassing $60 million. In a separate suit filed in 2013, the Department of Justice alleged that Standard & Poor's had inflated the credit ratings of various institutions leading up to the crisis.
Next week, the last before the calendar changes over for the New Year on Thursday, will be pretty thin on new economic data and developments. Monday will see the release of the Dallas Federal Reserve's manufacturing survey, although most of us will be finalizing plans for New Year's parties rather than watching the Fed.