Both the equities and commodities markets seemed a bit indecisive this morning while the world eagerly watches to see what progress is made between Greek Finance Minister Varoufakis in his meetings with other Eurozone finance ministers today. Prime Minister Tsipras is walking the difficult line between compromising with European leaders and appeasing his own constituents. U.S. and European stocks as well as precious metals were mixed but mostly flat, while crude oil prices were falling for the second straight day.
Yesterday in the Markets
Stocks rose on Tuesday while both gold and oil fell. The dollar remained robust near 94.75 on the DXY spot index, and Treasuries fell back again, with 10-year yields at 1.99%.
Factors Affecting Gold Today
Somewhat obscured by the unresolved problem in Greece (and rightly so) is the modest recovery of the European economy as a whole. The drop in oil prices and the easing of the euro have been a boost for business on the continent, and the euro area's purchasing manager's index was at a 6-month high n January. While there are certainly tail risks with the ECB QE program, and the potential still looms for a "Grexit" to shake up the entire currency union, the signs are positive that Europe may manage a bumpy recovery over the next few years and avoid another recession. It also helps that a significant amount of investment has been flowing out of U.S. equities and bonds and into Europe.
Not only is a weaker euro a bit of a boon for European countries grasping at a tenuous economic recovery, but it is also boosting the appeal of gold. With the dollar so much stronger than its peers, a flat--or even falling--gold price in terms of dollars allows the metal to be bought at a discount relative to prices in euros or yen.
The slump in oil prices may not be over, either. The IEA projects that the build-up of oil inventories should continue to drive prices further down before all of the sector's cuts, closures, and downsizes have much of an upward effect. Goldman Sachs reiterated this sentiment, warning that prices still had considerably more room to fall. Nonetheless, major oil companies around the world have been scaling back their operations, as corporate giant Halliburton has joined the growing list of producers that are cutting thousands of jobs in the industry, opting to wait for prices to rebound.
The story has recently been much the same in the gold mining industry, with projects being suspended or abandoned as prices for the metal slipped below the profitability level for many junior firms. With the rally in gold prices during January, however, the mining sector began to heat up again, with renewed fervor for big mergers and acquisitions, especially for African mines. Even with spot prices for the yellow metal sliding back over the last week, if this medium-term uptrend regains some momentum, gold production may pick up, as there has been an uptick in European demand for gold since the Greek crisis began to set in.
Weekly jobless claims come out tomorrow. The retail sales report and consensus business inventories will provide a better sense of how productive American manufacturing is at the moment.