With the dollar finally easing from its recent highs, the precious metals have been able to keep hold of the gains they have made this week. Volatility is still fairly high as the markets sort out where the sputtering global recovery is headed.
Wall Street opened in the red this morning on concerns over the health of the Eurozone economy remains in doubt. Euro banking stocks were also pulling down the European indices following the revelation that five banks have agreed to pay fines totaling $3.3 billion to regulators in the U.S. and U.K. in connection their role in manipulating the currency markets. In addition to rigging Forex trades, Switzerland's largest bank, UBS, has also admitted to misconduct in the precious metals market.
The five banks implicated in the Forex scandal are familiar names: JPMorgan Chase; CitiBank; Royal Bank of Scotland; UBS; and HSBC. Barclays will continue to be investigated by Britain's Financial Conduct Authority. For its involvement in manipulating precious metals, UBS was also fined an additional $138 million by the Swiss Financial Market Supervisory Authority. It would seem the problems of collusion and manipulation in gold and silver prices are now a matter of fact rather than outlandish posturing.
Yesterday in the Markets
Tuesday's closing numbers:
Economic News Affecting Gold
Stocks barely peeked into the green on a last-minute surge after spending the day moving in and out of positive territory. This was enough to propel both the Dow Jones and the S&P to new record high closes for the fifth consecutive day. With these "record levels" reached by only the most marginal of gains, however, Wall Street had no great cause for celebration.
After sinking into red in late morning trading, the dollar finished modestly lower despite the yen once again hitting new 7-year low. The weaker dollar helped precious metals hold their positions just barely in the green, perhaps allowing them to build momentum going into the end of the week. Both the euro and the pound gained slightly against dollar, while crude oil for December delivery continued to fall.
With gold now seemingly stuck below $1,200, technical analysts are looking for trends to help predict the near-term price movement. The 61.8% Fibonacci retracement is currently at $1,138.10, representing gold's support level, while a 50% Fibonacci retracement at $1,186.70 marks the current resistance level for gold prices.
Depressed gold prices have also been driving a rash of M&A activity in the mining sector. With prices this low, it makes economic sense for junior miners to allow the bigger mining companies to acquire their discovery projects. After acquiring Rainy River Resources last year, Canada-based New Gold is now buying Bayfield Ventures to expand its Ontario operations. Meanwhile, Scorpio Mining and U.S. Silver & Gold have also agreed to merge. Sprott Asset Management, which owns 19.6% of the shares of U.S. Silver & Gold, and Tocqueville Asset Management, which controls 15.9% of Scorpio Mining, have both agreed to back the merger. The new mining company will retain the Scorpio name, and is expected to mine as much as 5 million oz of silver annually.
In addition to mergers, current gold prices are also forcing mining projects to cut costs in any way possible in order to remain profitable. Iamgold, a mid-tier gold mining company, is reducing its executive staff by 40%, eliminating three senior vice president positions. Iamgold is also cutting its corporate memberships in order to save money, notably withdrawing from the World Gold Council. The company has stated it will take additional measures to cut costs in the future, as well.
Geopolitical News Affecting Gold
In the aftermath of the enormous fines being levied for manipulation of the Forex and precious metal markets, the Bank of England is taking further action, firing its chief currency dealer for failing to report the collusive activities he observed in the Forex market as early as 2006. After being suspended by the bank back in March, the dealer was let go amid allegations that he raised no concerns about traders sharing information about transactions that gave them an advantage in positioning ahead of the afternoon currency fix.
The BoE also made news by pushing back its projections for its first rate increase to sometime in late 2015, an indication that confidence in the economy of the EU is still not particularly strong. The outlook for Europe on the whole remains murky. German 2-year bonds currently have a below-zero yield at -0.05% as the country plans to sell €5 billion of the 2-year Bunds in an upcoming auction. As the European Central Bank mulls over the idea of adding sovereign debt to its asset-purchase program, demand for government bonds from Spain, Italy, and Portugal is seeing a much-needed uptick.
Jobless claims will be announced tomorrow morning at 8:30 am EST. The Federal Reserve's balance sheet will be released late in the afternoon at 4:30 pm on Thursday, which is one of the only remaining tools to evaluate the tenor of Fed policy with interest rates set near zero for "a considerable time."