Morning Market Update: April 16

Precious metals are continuing a steady recovery in New York, after bargain hunters and very heavy physical buying in Asia pulled gold and silver off 2.5-year lows. Some gold retail stores in Asia are reporting as selling completely out of all gold products.

Gold’s low of $1321.50 yesterday was below operating margins for some miners, which would have resulted in lower supply if prices had remained that low. CME Group has announced higher margins on gold contracts, which should prevent weaker speculators from reestablishing a position.

The dollar is lower today, and oil is steady after pulling off a 9.5-month low overnight.

In the U.S., housing starts were up 7% in March from February numbers, to a level not seen in nearly five years. Builders are rushing to supply demand that recent restricted housing inventory has built up. The Consumer Price Index dropped 0.2%, mostly on lower fuel prices. However, industrial output posted a small, but unexpected drop for March of 0.1% after a healthy February number that was revised upward to 0.9%. Stocks opened higher as Goldman Sachs and Coca-Cola both beat earnings estimates.

In Europe, German economic sentiment took a much larger than expected drop in April as the ZEW Index hit 36.3 against an expected 43.0. March’s number was 48.5, so this was a nearly 12 point drop. European stocks are lower, as the euro tops 1.31.

In Asia, the Nikkei is down for a third day, but the falling yen helped limit the damage. Chinese stocks are up for the first time in three days, on the red-hot real estate market, even though economic growth was reported slightly slower than expected.

All eyes will be watching to see if the bounce in precious metals can manage a close near the upper level of trading today, but it usually takes at least 4 days for the market to decide which direction to head after a large correction as we have had the last two days.

by David Peterson

Morning Market Update: April 3

Gold is steadying, using support of disappointing jobs data in the U.S. after hitting a 4-week low overnight. Silver hit an 8-month low in Asian trading before recovering, but is still flirting with the $27 level.

The ADP private sector jobs report showed a growth of 158,000 jobs, worse than expected. The ISM service sector index also came in lower than predicted, at 54.4% versus an expected 55.8%. This is a decline from February’s 56%. Both stocks and the dollar are weaker in New York on the news. We are also seeing some profit taking in the dollar. Oil is also lower, over news of growing reserves.  Volume on Wall St. is expected to be light ahead of the Friday’s non-farm payroll report.

Volume in Europe was also light, as investors await tomorrow’s ECB meeting. Euro stocks took a breather today after large gains yesterday. The eurozone composite inflation index rose at an annualized 1.7% rate, the slowest rise in almost two years. Cyrpus received another loan for € 1 billion from the IMF, for their attempt to restructure their broken banking sector.  German bund yields are still low, as safe haven demand over possible “bail ins” for other troubled southern European nations remains a concern.

In Asia, physical demand for gold is robust, as buyers buy the dip. The Nikkei had its largest gain in two months on expected new monetary easing measures from the Bank of Japan, which meets tomorrow. Hong Kong and Chinese stocks slid on light volume ahead of the two-day Qingming Festival holiday that starts in China tomorrow.

by David Peterson

Midday Market Report March 8

Gold and silver are showing a strong bottom in the face of a much better than expected non-farm payroll report, rising stocks, and a rocketing dollar. Precious metals took a big hit on the release of the payroll report, but sprang back in short order to previous levels and above to resume trading in that very tight range we’ve mentioned. The dollar index leapt a half percentage point on the payroll numbers, and continues its strength.

The fact that gold did not break the recent floor after this battering is good news for bulls, as the present floor seems to be strong. Now, attention will focus on whether gold can break that strong resistance level at $1,585.  Bargain hunting and physical purchases are helping maintain the bottom, as well as the covering of shorts that expected a big decline.

The payroll numbers aren’t as fantastic as an initial glance may indicate, as many of the jobs added were temporary or part-time jobs, and the decline in the unemployment rate to 7.7% can be partially attributed to people falling out of the workforce after giving up on finding a job. Early feedback from analysts show little of the nervousness that the Fed will curtail quantitative easing, in contrast to last month.

Exchange Traded Products are seeing a split popularity, as gold and platinum ETPs see outflows, but silver and palladium ETPs see gains. Deutch Bank sees increased palladium demand and tight supplies as China begins to address their air pollution crisis in their major cities. Despite the outflow in gold ETPs in the West, Chinese physical demand remains strong. UBs reports continued elevated levels of physical gold purchases through Shanghai.

by David Peterson

Morning Market Update March 4

Political paralysis in the U.S. and Italy are the main economic stories today, with China adding a little equity-depressing news as well. These developments are helping gold prices firm, even though the dollar continues to be strong and oil weak.

Italy may be headed for new elections soon, as the leader of the anti-establishment Five Star movement rejects an alliance with either Bersani’s or Berlusconi’s coalitions. Beppe Grillo, spokesman and leader of the new third faction in Italian politics, says that the only way forward for Italy is the expunging of all the career politicians of both the left and the right.

European Union delegates are meeting today in Brussels, to discuss not only Italy’s rejection of austerity measures, but also the mess of the Greek and Cypriot bailouts. Germany is facing increasing resistance from its citizens regarding paying for the bailout of all these other countries.

In the U.S. Congressional Republicans and President Obama continue their attempts to paint the other as the bad guy in public opinion, as mandatory furloughs and cuts begin due to the “sequester.” The sequester was supposed to be so horrible that it would force cooperation in Washington, but politicians underestimated their own disfunctionality.

Despite the show of political immaturity in Washington, the dollar is mostly steady today after hitting a six-month high on Friday. Oil is also steady, after hitting a two-month low on Frdiay. Gold is mostly steady against these dual headwinds, gaining strength from a declining euro and some safe haven buying in the EU.

In China, the government has announced higher requirements for purchasing second homes in certain cities that are seeing runaway housing prices, which, when combined with depressing manufacturing numbers, led the CSI 300 index to close at its lowest level since November 2010.

In Japan, the Nikkei was up sharply on expectations of the new Bank of Japan chairman easing monetary policy, but the gains were limited when a technical error stopped futures trading.

Hedge funds and money managers are increasing gold longs, as the yellow metal is at levels where placing new shorts is a risky bet. This is also helping gold.

by David Peterson