The markets were vibrantly active this morning with both gold and stocks in the U.S. and Europe rising in early trading. It seems that investors expect both the Federal Reserve and the Bank of England to hold off on rate hikes for the near-term, helping pump money into the equities markets while there is still a near-zero interest rate environment. (Who could blame these investors? The central banks are essentially telegraphing their intentions.) Precious metals, however, are also seeing demand due to a combination of deflation fears and perceived market risk in general. Silver notched a 4-week high above $17/oz while gold is at its highest level since October.
Yesterday in the Markets
Yesterday was another solid session for precious metals, as they all moved modestly higher, with gold adding about $10 to close near $1,235. Platinum and palladium also continued to rise, while 10-year Treasuries rose yet again; the yield on the 10-year note threatened to fall below 1.90%. Yet, by comparison, most other major economies have already seen the yields on their benchmark 10-year bonds shrink to less than 1%, leaving little room left for safe haven seekers (besides the precious metals).
The U.S. Mint announced that 2015 Silver Eagle sales already topped 2.9 million in their first day of sales, yet another strong showing for silver bullion purchases. With stocks on the rise for most of 2014, many investors are rebalancing their portfolios with more bullion to match the rising value of their other shares.
Factors Affecting Gold Today
Crude oil dropped another 3% early Tuesday morning, sending WTI crude below $46 with Brent crude only a few dozen cents behind. There seems to be no bottom in sight: the United Arab Emirates joined several other oil-producing nations in taking a public stand not to cut its production for fear of losing market share to other countries. If tomorrow's EIA petroleum status report shows that, even with some shale producers being priced out of their operations, U.S. stockpiles are still considerable, it will drive oil even lower.
The collapse in oil prices is really roiling the plans of the world's struggling major economies, namely Japan and Europe, in their attempt to reverse deflationary pressures. This is part of why it seems the BoE and the Fed are holding off on normalizing monetary policy too soon. U.K. gilts (bonds) keep rising due to the lowest inflation readings in 15 years, sending yields plunging. The story has been similar in the U.S.; as funds get crowded in government bonds, gold and silver should absorb some excess safe haven demand. Though a rising dollar and falling oil are usually trends that apply a downward force on the gold price, the unique risks of the current scenario have actually sent the yellow metal higher in spite of the continued strength of the U.S. economy. U.S. stock indices were all over 1% higher by mid-morning, and European indices vaulted nearly 2% across the continent.
Gold hit its highest price in euros since September of 2013, and its best showing in dollars since this past October. David Govett, the head precious metals broker at the London-based Marex Spectron Group, told Bloomberg, "It just seems that people are looking at precious metals as a comparatively cheap investment at the beginning of the year." Interestingly many gold miners are reporting record production for 2014 because the drop in prices over the last two years forced them to conduct only the highest-grade operations to counteract the weaker prices. We may have seen "peak gold" last year, or will see it in the very near future.
According to the Wall Street Journal, gold-buying in anticipation of the Chinese Lunar New Year (late February) is already beginning, as volumes of gold trades are up in Asia. This should also be a bullish development for gold early in the 2015 calendar, as adherents and Lunar zodiac enthusiasts all over the globe prepare for the Year of the Goat.
In addition to the all-important petroleum stockpile data, tomorrow will also see the release of business inventories for November, import and exports for December, retail sales for December, and the Fed's Beige Book, which provides anecdotal evidence of the economy's general well-being.