After years of speculation and clandestine purchases of gold bullion by the Chinese government, the country has finally released its official gold reserves for the first time in 6 years. The People's Republic revealed that it currently holds 1,658 tonnes (53.3 million troy ounces) of gold bullion, up from 1,054 tonnes at the last update in 2009. Although this represents an increase of 57% over that span, the aggressive gold-buying by the Communist regime had led many observers to venture numbers that are twice as high for China's reserves, so it still remains possible that China's "unofficial" gold reserves are even higher.
While the news wasn't necessarily expected to move the markets today (though perhaps the government felt it could restore confidence in Chinese stocks), it was still a bit of a surprise that the precious metals again opened lower this morning, capping a week of consecutive losses. Spot gold sat at just $1,138/oz at Friday's open, silver slid 10 cents to just below $15/oz, and the Platinum Group metals each lost more than $10. Both crude oil benchmarks were also lower, pushing WTI crude to $50.50/bbl and Brent crude to $56.65/bbl.
Yesterday in the Markets
The precious metals were each lower as stock indices in the U.S. rose on more robust corporate earnings during the second quarter than originally expected. Netflix, Citi, and Blackstone shares rose, while Goldman Sachs posted a surprise drop in Earnings Per Share (EPS) thanks to setting aside $1.45 billion to deal with mortgage-related litigation. Overall, the Dow Industrials gained 0.4%, the S&P 500 rose 0.8%, and the Nasdaq led the way 1.25% higher.
Factors Affecting Gold Today
The dollar was slightly higher at 97.75 on the DXY this morning, which is part of what's pressuring precious metals lower. In the absence of acute geopolitical strife in Europe over Greece and the Middle East over the Iran deal, the metals have fallen through key support levels: gold has fallen below $1,140/oz, silver breached the $15/oz threshold, platinum is flirting with falling below $1,000/oz, and palladium has cratered below $625/oz. Add this to the seasonal "summer doldrums" for the PM markets and you have a recipe for falling gold prices. The progressive drop in prices has fueled strong retail demand for bullion products of late, as volumes (and premia) have jumped since mid-June, around the time when Chinese equities were topping.
Housing starts and consumer prices both got a boost in June: the former rose by 9.8% while higher rents contributed to the 0.3% gain in CPI, marking the fifth consecutive month the cost of living rose in the U.S. While the pickup in price acceleration is a sign that inflation may finally be taking hold after multiple years of running flat. Markets have been running on high sentiment after Google beat estimates in its quarterly earnings report. Shares of the company were 12.75% higher in trading this morning on the news. The Philly Fed survey, however, dropped to 5.7 in July after registering at 15.2 in June; while a reading above 0 indicates expansion, July's numbers were well below expectations of 12.0.
After the Greek parliament approved a series of austerity measures in order to secure fresh bailout funds from Europe, the German Bundestag also approved the agreement, a key hurdle to unlocking new funding for Greece. With the fiscally disciplined Germans onboard, even if only tepidly, it seems a foregone conclusion that Greece will receive its third bailout in 5 years in order to service its immediate debt and perhaps get its economy running again. Negotiations on a longer-term 3-year loan worth about $90 billion will continue while Greece (with the backing of the IMF and some of Europe's more centrist leaders) will seek some form of debt relief from its creditors. The German finance minister, Wolfgang Schaüble, nonetheless kept up his adversarial stance toward the indebted Greeks, suggesting that a "Grexit" is still a possibly attractive outcome. Although such a development would be politically devastating for the euro area, he is at least right that an exit from the currency union could be the more viable economic solution for the Mediterranean country.
Monday and Tuesday are nearly devoid of big economic news next week. The housing price index, existing home sales, and the EIA petroleum status report will all come out on Wednesday.