Friday, October 10, 2014

Gold Prices Hit 3-Week High, Stocks Recover

QUICK READ: After precious metals tracked with stocks into red territory last week, the metals reversed direction on persistent fears that Europe and Russia will drag down the global economy. The stock markets briefly recovered much of their losses from early in the week following the release of September’s FOMC meeting minutes; the minutes and statements by the Fed essentially reaffirmed the central bank’s inclination toward accommodative monetary policy for at least the next several months. 

The stock markets took a shellacking this week, as the three leading U.S. indices each plunged more than 2% from their Monday opens.

Tuesday saw a precipitous drop, as the Dow Jones lost nearly 200 points while both the S&P 500 and NASDAQ has their lowest closing numbers in 2 months. The neutral (markets read: dovish) reports from the FOMC on Wednesday gave stocks a tremendous boost, helping them recover nearly all of the week’s losses, before another steep sell ­off on Thursday.  All 30 of the stocks traded on the Dow were in the red on Thursday, a day of trading that turned out to be the worst for the industrial index since early February. The dollar finally eased a bit, slipping below 85.2 before bouncing back to about 86 on the dollar spot index.

Job openings in the U.S., used as an approximate measure of labor demand, reached its highest level since 2001. Although this would appear to indicate that the job market is looking firmer, the labor participation rate continues to be dismal; it’s no surprise that this metric has been removed from the “official” unemployment calculations provided by the state.

As one might expect, U.S. Treasury yields slid, as the 30­-year bond sat at 3.03%, its lowest since May of last year, and the 10­year note was as low as 2.30%. Since the beginning of 2014, the 10-­year T-­note yield has dropped a remarkable 76 basis points, including shedding some 30 bp over the last month alone.

Following encouraging economic news from the jobs report and non-­farm payrolls, gold began the week at a 15­-month low. The yellow metal bounced to a 3-­week high near $1,223 after touching its “triple bottom,” considered by technical analysts a reliable indicator of the reversal of a prolonged downward trend. With the dollar’s momentary easing, gold futures jumped by their largest margin in two months.

Generally, the precious metals recovered this week to post modest gains across the board, although volatility has certainly increased. Platinum dropped to $1,264 early in trading Friday after dipping as low as $1,225 last week. Even with the trend reversal, platinum remains down just shy of 9% over the past month.

Despite precious metals largely recovering, other commodities have continued to fall. Crude oil tumbled to two­-year lows, as both WTI crude and Brent crude have slumped below the $90 mark. The falling prices can be attributed to a supply glut and weaker growth projections for the global economy.

In corporate news, Hewlett­-Packard has announced it will split into two separate companies­­ one focused on the software side of the business, the other concerned only with hardware. HP stock popped 4.7% on the news Monday.


Monday is the Columbus Day holiday in the U.S., and thus bond markets will be closed. With Fed policy demystified for the moment and most major geopolitical risks under wraps, the markets will likely focus on the release of economic indicators next week. Retail sales come out Wednesday, while first ­time jobless claims and industrial production reports are slated for Thursday. 

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