Friday, September 5, 2014

ECB Action Shakes Up Currencies and Commodities

By Terrence Campbell, Marty Menz, and Everett Millman 

A robust dollar and news of economic stimulus in Europe gave a lift to the stock markets while applying downward pressure on precious metals (and most other commodity classes) this week. Investor sentiment matched the ambiguous messages coming from the Ukraine conflict, as it remains unclear whether Russia will favor a swift peace or protracted war. 

U.S. stocks remained flat this week with the Dow Jones Industrial Average and the S&P 500 moving lower by around 0.1 percent and 0.3 percent, respectively, as of Thursday’s market close. The Dow hovers above 17,000 while the S&P slipped below 2,000 as of Friday’s open. The Nasdaq fared worse, falling more than half a percent since Tuesday’s opening, perhaps a result of the 5% drop in Apple stock after news of a leak of data stored on the iCloud; Apple so far denies a breach of iCloud itself.

The U.S. economy continued to experience modest growth (per Fed forecasts) as new aircraft building contracts sent U.S. factory orders up over 10 percent and data released Wednesday showed rising automobile sales. This is in contrast to employment data released Friday, which showed employment growth of only 142,000 jobs for August, the lowest in 8 months; June and July employment figures were also revised downward.

The U.S. Dollar continued to gain, pushing upward to around 83.82 on the DXY dollar index as of Friday morning. This latest push by the dollar, near 14­month highs, coincides with actions taken by European Central Bank President Mario Draghi to help shore up the Eurozone’s floundering recovery, which included lowering interest rates further and initiating quantitative easing. The German stock exchange DAX jumped 1.4% on the news of QE. The British pound also saw a boost from the ECB’s newest attempt to stave off deflation of the Euro.

On the commodities markets, gold and oil became casualties of the newly-­announced moves by the ECB. Gold fell to $1,264 per ounce for the LBMA’s Friday A.M. fix, continuing its 3­ week slide.  Meanwhile, a report published earlier this month by Citigroup shows that gold mining companies have been successful in cutting costs to stay in line with the fall of bullion prices since 2012. The report cautions, however, that this short term cost­-cutting may prove detrimental in the longer term as many cuts have been in the areas of exploration and initiation of new projects, which may inhibit their ability to produce if prices do rise again. Silver continued to perform poorly this week, hovering in the range of $19.20 to $19.15 per ounce. After touching above $900, palladium settled at $889 per ounce at Friday’s open, still up nearly 23% over the last year.

On the week, foreign stock exchanges performed well as Germany’s DAX, Britain’s FTSE, Hong Kong’s Hang Seng, and Japan’s Nikkei all experienced growth from Monday’s open through Thursday. Global markets subsequently saw a slight dip Friday morning. Meanwhile, India’s emerging economy has spurred growth in its stock exchanges, with the Mumbai Sensex up nearly 30% on the year, above 27,000, while the Nifty has risen above the 8,000 mark.


The non­farm payrolls report is set to be released Friday, an important indicator of economic activity. Even with persistent upheaval in the Middle East, attention will remain focused on Ukraine until a resolution is struck. After its steep drop, gold is consolidating around the psychologically important support level of $1,265; the next few weeks will be telling whether the yellow metal bounces or breaks through lower.

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.