Spot gold is down slightly from yesterday's close near $1,312, after spiking to a 3½-month high overnight. Silver and the PGMs are essentially flat.
Despite the fact that the U.S. has started airstrikes in northern Iraq against the terrorist army of ISIS, and rockets and bombs are once again flying in Gaza, two unconfirmed rumors on Twitter saying that Putin wants to deescalate the conflict in eastern Ukraine had stocks reverse losses and gold give up safe haven gains. Of course, after such a big rally, profit-taking has also entered the picture.
In northern Iraq, an estimated 200,000 Iraqi Christians and Yezidis are on the brink of starvation in the mountains, after fleeing an extermination campaign by the terrorist army Islamic State of Iraq and Syria (ISIS). The United States and Britain are conducting emergency food and water airdrops, while the US Air Force hammers ISIS artillery batteries outside the Kurdish town of Erbil with laser-guided bombs. The United States has a consulate in Erbil, which is one reason it is now providing close air support to the Kurds defending the town.
ISIS has heavy artillery and even tanks it has seized from Iraqi Army bases it has overrun in its campaign to build a trans-national Islamic State encompassing western and northern Iraq, and eastern Syria. ISIS has conquered at least 15 towns in northern Iraq this week as it pushes into traditionally Kurdish territory.
Pundits immediately posited that this action by the U.S. will give Putin the cover he needs to intervene directly in the Ukrainian civil war under the pretext of a "humanitarian mission."
Further west, rockets were fired into southern Israel only moments after a temporary ceasefire expired between Hamas and Israel, which earned a prompt series of airstrikes. While the Israeli government blames Hamas, another terror group, Islamic Jihad, has claimed responsibility for the attacks. Of course, it's the citizens of Gaza who end up being punished.
The dollar saw its rally snapped, as today's airstrikes put the U.S. in ISIS's crosshairs. Safe haven action is moving to the yen and Swiss franc. Treasuries continue to see heavy safe haven action. The 10-year Tnote hit a 13-month high yesterday, with the yield dropping to 2.41%. The rally continued this morning, with yields dropping to 2.39% Bonds are running out of room to hedge against the stock market correction every one is anticipating. Gold is now even more desirable as a way to offset equities, with plenty of room to the upside.
On the economic front, worker productivity in the U.S. for the second quarter rebounded from the horrible "polar vortex" -induced drop in the first quarter. 2Q productivity was reported up to a 2.5% annual rate, compared to the -4.5% for 1Q.
Wall St. is extremely volatile this morning, partially because of light volumes. This may be triggering high-frequency trading computer programs back and forth between "buy" and "sell". Skynet has arrived, and it's running the stock market.
Things to watch for over the weekend:
- Retaliation by ISIS against U.S. targets in Iraq and other nations.
- Ukraine's threat to turn off the gas pipelines running from Russia to Europe, which provides a large portion of Russia's income.
- Gaza conflict blowing up again
- Chinese CPI and PPI released Friday night.
August is when most of Europe takes two to three weeks vacation every year, so volumes will be especially thin for the next couple of weeks. Once we get past this, volumes will increase and India will be entering the fall wedding and festival season. Whether above-board, or on the black market, Indians will get their gold, which will support physical demand.
Sanctions and counter-sanctions over Ukraine will play a large part in whether the rest of the EU will follow Italy back into recession. Russia has been in recession, and the question there is whether Putin's call for patriotism and resistance against the evil West is enough to keep dissent down as food prices rise, and stock portfolios implode.