Friday, September 26, 2014

Gold, Oil Prices Fall On Stronger U.S. Dollar

QUICK READ:  A rising dollar had the greatest effect on the markets this week, driving most commodity prices lower. This was especially true for the precious metals, which all neared (or in the case of silver, surpassed) yearly lows. The emergence of a massive international coalition against the terror group ISIL seemed to abate negative investor sentiment regarding the conflict, although the yen, the dollar, and U.S. Treasury notes did see some safe haven demand.

A stronger dollar has been placing downward pressure on commodities prices, including oil and precious metals.  The DXY index marched ever­ higher to 14­ month highs, closing above 85 for the first time since 2010.  This marks 10 consecutive weeks of gains for the greenback as growth (and confidence) in the American economy has been picking up slightly.  Favorable housing data and manufacturing numbers released this week in the U.S. and China helped improve growth projections for the world’s two largest economies.

Risk appetite still appears overly high in the stock markets, even as all the major U.S. indices receded by week’s end.  The markets responded well to the meeting of the UN General Assembly on Wednesday, perhaps spurred by the global consensus on combating the terrorist group ISIL. Yet, all gains were given back on Thursday as the Nasdaq, S&P 500, and Dow Jones all fell more than 1.5%. By Friday’s open, all of these indices remained well in the red: the Dow was below 17,000, the Nasdaq was below 4,500, and the S&P was below 2,000. The yen and 10­year Treasury note both saw some safe haven demand throughout the week, although gold ostensibly did not.

Gold retested its lower boundary of $1,215 throughout the week, bouncing up above $1,220 each time before settling back near $1,217. Despite robust demand for physical silver bullion with prices depressed, the white metal continued to drop to 4­year lows, falling some 30 cents (­1.69%) from Tuesday’s open to Thursday’s close of $17.52. This would seem to imply that the physical market for precious metals has far less influence on prices than the paper markets, among other factors, although we may simply be seeing some profit­taking as investors closed out or rolled over their positions on Thursday, when options on gold and silver on the Comex expired. Both platinum and palladium continued to slide to yearly lows, as well.

In global markets, the Nikkei 225 hit a 7­year high on Prime Minister Abe’s reaffirmation that the Bank of Japan will proceed with its highly accommodative monetary policies. Both the yen and Japanese stocks rose on the news. Meanwhile, the rest of the Asian markets slumped, partly due to the lack of further stimulus or monetary easing by the Chinese. As China presumably turns toward austerity, Japan and the EU are employing extreme quantitative easing, resulting in boosts for their respective stock exchanges­­at least temporarily. 

A LOOK AHEAD: Pending Home Sales data is scheduled to come out on Monday morning, bringing greater clarity to the positive housing numbers released this week. The PMI Manufacturing Index and the ISM Manufacturing Composite Index will both be released for July on Wednesday, the 1st of October.

By Everett Millman, head content writer at Gainesville Coins, a leading gold and silver distributor.