Correction: The Shanghai Gold Exchange international contract will begin September 29th, not September 18th.
Markets are bracing for a heavy week ahead, as the Scottish independence vote and FOMC policy meeting are on tap.
Precious metals eased again in Asia, despite gold hitting a 7-1/2 month low. Speculation is growing that Chinese institutional buyers are being encouraged to delay purchases until next Thursday, when the international bourse at the Shanghai Gold Exchange opens. The Chinese government will want this momentous occasion to go well, as it seeks to have more say over the international gold price. One indication of the market power of China is that the new silver fix is determined in trades of lakh (100,000 oz,) instead of in the former 1000 oz Good Delivery bars.
All of the four major precious metals are holding above new, lower support levels this morning. At 10am EDT, gold was down $6.80 to $1,233, silver was down 9 cents to $18.59, Platinum was down $11 to $1,356, and Palladium was down $6 to $822.
The dollar dropped into negative territory on the U.S. retail sales report, but soon regained its footing. The greenback is on its way to its best week in 10 months, as the rest of the world's currencies are being hit hard for various reasons.
European stocks are cautious ahead of the independence vote in Scotland on Thursday, as well as today's imposition of additional sanctions against Russia for its armed intervention in Ukraine. Despite good economic reports this morning, Wall St opened down and dropped deeper on profit taking ahead of the Fed policy meeting that starts Tuesday.
The Nikkei was boosted to an 8-month high, as the weaker yen helped exporters compete overseas, but the Hang Seng in Hong Kong saw its biggest weekly loss in 6 months, on worries over the Chinese economy, and fears of an imminent Fed rate hike.
Yesterday in the Markets
Yesterday was a down day for stocks, as they spent most of the trading day in the red. It was only during the last hour of trading that the NASDAQ and S&P500 were able to barely stick their noses above water.
In precious metals, gold and silver were down moderately, with the PGMs showing larger losses.
Economic News Affecting Gold
Markets are preparing for upheavals both economic and geopolitical. The spate of good economic reports in the U.S. have raised fears that the Fed will discontinue it's "zero interest rate" policy that has fueled all the stock buybacks and equity speculation for the last few years, and traders are becoming concerned that present stock valuations are too high for a more normal interest rate climate.
The EU imposed more financial sanctions against Russia for its aggression in Ukraine, including letting rebels transit through Russian territory to open a second front on the Ukrainian seacoast, and backing them up with Russian tanks and self-propelled artillery. The U.S., which demanded that the EU go first this time, will announce sanctions today. Since the EU has ten times the trade with Russia than the U.S. has, sanctions are having a large "blowback" effect on the EU economy by blocking exports to Russia.
Retail sales in the U.S. grew 0.6% in August, half of that being new cars. July's numbers were revised from 0.0% to 0.3%. Consumer sentiment grew by two points to the highest level in over a year. Markets are transitioning to a "good news is bad news" sentiment, as more data that the economy is improving increases the chance that the Fed stops the "free money" interest rate policy. Higher interest rates that keep pace with inflation are a bearish factor for gold, as well.
Geopolitical News Affecting Gold
Despite (or because of) the imposition of new sanctions, Russia last week pressured the rebels into accepting a ceasefire. The Russian-back offensive pressured the Ukrainian government to the bargaining table as well. Before Moscow got directly involved, Kiev was on the verge of surrounding and isolating the last pockets of rebel resistance.
The ceasefire is (mostly) holding, and today 36 Ukrainian soldiers were exchanged for 31 rebels in a prisoner swap outside the rebel-held city of Donetsk. Among the freed rebels were a number of Russian citizens. The ceasefire has reduced international tensions, leading to evaporation of safe haven demand for gold.
Russia has responded to U.S. plans to strike ISIS positions in Syria, saying that any airstrikes in Syrian territory will be seen as an act of aggression against Russia itself. This statement comes despite the fact that the targets will be the greatest threat to the Russian-backed Syrian government itself. Russia is especially protective of Syria, as it is home to the only Russian Navy base in the Mediterranean.
The Fed could throw global markets into turmoil next week by omitting two simple words from the FOMC report on Wednesday - "considerable time." If the Fed not repeat the message that it does not plan to raise rates for a "considerable time" after QE (money printing) stops next month. there will be panic in stock markets worldwide.
Thursday is a BIG day for markets, as Scotland votes for independence, and the Shanghai Gold Exchange begins international spot trading. The economic upheaval of splitting the United Kingdom cannot begin to be estimated. Scotland's two largest banks have already stated that they will move to London if the vote succeeds. Pro-independence Scots seem to be underestimating how difficult building the required national and international functions that will immediately be needed is going to be.
Some are speculating that the absence of Asian physical gold demand is tied, at least in part, to the opening of the international bourse at the SGE. With the Scottish vote happening the same day, and the FOMC policy statement occurring about 12 hours before, it will be hard to attribute individual factors to gold's price movement next Thursday.