Friday, August 22, 2014

Gold Tumbles Ahead of Janet Yellen Speech

By Terrence Campbell, Marty Menz, and Everett Millman 

The U.S. Dollar continued to climb as the .DXY index, which gauges the strength of the dollar in relation to other currencies, closed above 82 for the first time in 11 months Wednesday. Gold fell nearly $20 Thursday from Wednesday’s PM fix price of $1,295 while platinum and silver maintained their downward trends for the month. Platinum has fallen from nearly $1,500 per ounce a month ago to $1,425. Silver traded under $19.50 per ounce.  Palladium reached $900 per ounce for the first time in over 13 years on Monday, but receded slightly to around World markets were generally up this week, though Hong Kong’s Hang Seng had a shaky Thursday on the heels of a poor Chinese PMI report which indicated Chinese manufacturing may be slowing. Meanwhile, Japan’s Nikkei saw a 3­week high on Thursday as the yen weakened, a boon for exports. German PMI data boosted the DAX, which tracks performance of Germany’s 30 largest companies, though similar data for France showed continued stagnation. The U.K.’s FTSE 100 also had a good week, despite sentiment that the Bank of England will be the first central bank to raise interest rates.

U.S. stock exchanges saw a reversal of previous weeks’ losses this week as the Dow Jones Industrial Average crept upwards, again topping 17,000 on Thursday after a Monday open of 16,664.45. The S&P 500 also saw substantial gains this week, moving upwards from a Monday opening of 1,958.36 to 1,992.37 on Friday, a rise of 1.7 percent. Meanwhile, the Nasdaq continues its climb as it tests territory not seen since the dot­com bubble of the late ‘90s; the Nasdaq sat at 4,532.10 Friday morning after Monday’s open of 4,490.53. It appears the dip stocks experienced a few weeks ago did not initiate the market correction many analysts have been predicting.

The stock market had plenty of positive news to spur trading this week as a number of economic reports further indicated that the U.S. recovery is gaining traction, this rise in markets coming in spite of renewed worries that the Fed will raise interest rates sooner than expected. July housing and labor data, released Thursday, indicated increasing strength in housing sales and continuing job growth. Statements released with the minutes of July’s Federal Reserve meeting and comments made by Kansas City Fed President Esther George to CNBC may indicate an increasingly hawkish attitude towards interest rates.

China Addresses Banking Concerns

This week, China allowed 3 more banks to import gold (including one foreign lender), bringing the national total to 15. China has been gradually liberalizing its regulations on gold over the past 5 years. This development is in lockstep with the expansion of the Shanghai Gold Exchange; as the world’s top producer and demander of the yellow metal, China is attempting to assert a greater influence on its price. Until recently, gold in Far East markets typically traded for a significant premium over the London fix benchmark, making a more local price discovery mechanism increasingly pressing for the Asian market. Even though demand has waned relative to last year’s explosion, China’s behavior regarding gold is a trend worth following, especially with signs of shakiness in the Chinese banking sector.

A LOOK AHEAD: Janet Yellen speaks about the July FOMC meeting minutes on Friday afternoon, while ECB President Mario Draghi also speaks on Friday at a global central bank conference. Both will be watched closely for any further indication that interest rates will be raised more quickly than anticipated­­perhaps as soon as Summer 2015.

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.