Friday, August 8, 2014

Gold and U.S. Dollar Rise as Ukraine Heats Up

By Terrence Campbell, Marty Menz, and Everett Millman 

The U.S. Dollar continued its climb throughout this week, rising to an eleven­ month high against a basket of foreign currencies Thursday before falling Friday morning as the U.S. authorized air strikes in Northern Iraq.  The Euro and the Japanese Yen both fell Thursday before seeing a rise as the dollar dipped Friday. The euro traded against the dollar at $1.338 and the dollar against the yen at ¥101.89 on Friday morning. The British Pound was also trading down versus the dollar on Friday at $1.679. Analysts forecast that the dollar’s rise will continue, citing a string of positive economic numbers in the U.S. indicating recovery, compounded with instability elsewhere in the world. Meanwhile, the Russian Rouble continued to fall slightly after a 1.7 percent skid last week as Russia’s economy struggles under the pressure of Western sanctions.

The announcement of renewed U.S. intervention in Iraq sent oil prices up slightly, with U.S. crude up more than a dollar to around $97.70 per barrel and Brent crude to around $105.74. Gold and government bonds saw a surge in safe haven demand on Wednesday after it was reported that Russia had amassed 20,000 troops on Ukraine’s eastern border. Many investors fear a Russian invasion of Ukraine which would upset European markets just as the Eurozone attempts to stabilize after poor economic news. Gold saw a jump of more than 20 dollars on Wednesday from a Tuesday P.M. fix of around $1,285 per ounce to a Wednesday P.M. fix of over $1,305. Conversely, silver performed poorly, the fix price sinking below $20 per ounce Tuesday, though rebounding slightly to just above $20 per ounce as of Thursday, a position which held through Friday. U.S. Treasuries and German government bonds saw interest rates fall in response to increased demand; yields on the U.S. 10­year Treasury Note and 10­year German bond sank to around 2.39 percent and 1.03 percent by Friday, respectively.

The Dow opened at 16,369.68 Friday morning, down for the week after a Monday open of 16,493.72. The S&P and Nasdaq are also down for the week, from Monday openings of 1,926.62 and 4,365.62 to Friday openings of 1,910.35 and 4,340.88, respectively. Stocks experienced a sizeable dip on Tuesday with the Dow Jones Industrial Average losing 130 points. This decrease comes after Wall Street’s dismal performance last week, which saw the Dow and S&P lose just over 2.5 percent each and the Nasdaq down about 2.2 percent. Despite these recent losses, some see a further correction on the horizon, claiming the market is still significantly overvalued. The price to earnings ratio for the S&P 500 currently sits at 15.1, slightly above the long­term average of 14.8.

World markets were mixed this week, with European markets down in response to economic sanctions and increased tensions with Russia over Ukraine as well as turmoil in Southern Europe, where Portugal bailed out its Banco Espirito Santo and Italy slid back into recession. Geopolitics and instability also had a slight effect on Asian markets. The Nikkei 225 and Hang Seng have both traded lower this week, but the Nikkei saw a rise on Thursday morning after Japan’s Government Pension Investment Fund announced plans to invest over 20 percent of its funds in domestic stocks, up from 12 percent currently.

Elsewhere in Asia, the People's Republic of China may be experiencing a contraction of its economy. The HSBC services PMI, a measure of growth in the Chinese service sector, dropped steeply this week to its lowest level in 9 years—the first year such data was collected. As the housing market also cools down, China must consider whether or not monetary easing policies should be explored.

Terrence, Marty, and Everett make up the Content Team at Gainesville Coins, a Leading Gold and Silver distributor. Combining diverse backgrounds and interests in economics, history, anthropology, and geography, the Gainesville Coins Content Team seeks to keep readers informed with current market happenings.