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Price of Gold Up, Stocks Down

blog | Published On 8/2/2016 9:53:11 AM by Everett Millman
Source: Bloomberg Source: Bloomberg

Tuesday morning saw solid gains for the precious metals, with the spot gold price jumping better than $10 per ounce higher at the market open. This notched a fresh three-week high for the yellow metal, which is trading at $1,363/oz. Meanwhile, silver prices were more than 1% in the green, approaching $20.70/oz during early trading.

Action from around the rest of the financial markets suggests that stocks are trending lower today, dragged down by weak crude oil prices. Wall St was down between 0.5% and 0.85% around 10:45 am EST.

Stocks Down

Source: Forbes Source: Forbes

Outside of marginally positive stock indices in Shanghai and Poland, global stocks were in the red across the board to kick off the trading day on Tuesday. While much of this is being attributed to the slump in oil prices, there are other reasons that equities are unhappy. Still, crude oil has once again slipped below $40 per barrel, down 22% from its recent high in June.

The markets haven't responded well to the smaller-than-expected stimulus measures announced by Japan. Many were expecting another aggressive round of monetary easing from the Bank of Japan, but it only committed to a modest package of asset purchases and disappointed some by ruling out using "helicopter money." Instead, Japanese Prime Minister Shinzo Abe will rely on fiscal measures—more spending—to combat the country's economic woes.

This pushed the yen closer toward ¥100 per dollar, much to the chagrin of the Japanese government. The country's leading Nikkei 225 stock index lost almost 1.5%. Meanwhile, the dollar fell to a five-week low after hitting a four-month high only a week ago.

Banks Struggling

bankAnother issue has been the apparent frail health of Europe's banks, especially in Italy. Although regulators in the EU claimed that the region's banks passed a recent stress test, most observers remain extremely concerned about the stability of the eurozone. The worst performer among the banks tested was the Italian lender Banca Monte dei Paschi di Siena, which is actually the oldest active banking institution in the world (founded 1472). The EURO STOXX 50 stock index likewise tumbled nearly 1.5%.

In order to navigate this increasingly worrisome outlook in the banking sector and deflationary pressures everywhere around the global economy, the central bank of Australia cut its benchmark interest rate to a new all-time low this morning. Still, compared to the negative rates found elsewhere, bonds and assets denominated in Aussie dollars continue to be attractive by comparison. Markets will keep an eye on gatherings of Thailand's central bank and the Bank of England later this week.

Wages in dollars

The big data in the U.S. this morning was a slight uptick in consumer spending. The measure was up 0.4% in June, which was above the consensus expectations of analysts. However, personal incomes rose just 0.2%, which fell short of expectations. Because of the mixed signal of these two pieces of data, the precious metals have largely ignored any optimism that the consumer spending numbers might have otherwise engendered. Later today, auto sales in the U.S. will also be released.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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