End of week report: Gold prices lower after storm and economic reports:


Gold prices lower after storm and economic reports:

With the presidential election in the U.S. coming up next week and the questions looming about the future of the global economy, one would believe this week would cause quite a bit of action in the market place. However, hurricane Sandy had other plans. The decision was made Sunday evening to close New York stock exchanges for both floor and electronic trades due to Hurricane Sandy. The so-called “monster storm” is predicted to hit New York later today. Following suit, the Nasdaq OMX Group Inc and the BATS also announced that option and stock trading would be closed Monday. Schools and public transportation are also put on hold due to the severity of this storm. Gold hovered today as Hurricane Sandy passes over the East Coast of the United States. While there has not been much movement in the price of Gold, the small amount has been positive. A couple of reasons have been the positive economic reports out of Europe and the news of more monetary easing. One of the main reasons for continued easing in the U.S. is the lack of improvement in the unemployment rate. Peter Fertig, a consultant with Quantitative Commodity Research, said, “The level of unemployment is still at a level where the Fed does not feel comfortable with it.” After the storm had past the employment report came out Friday and it was better than expected.  Gold has fallen drastically today as the dollar made gains following better-than-expected reports on nonfarm payroll data. Today’s price dip could be the largest single-day drop since late August. The metal is now trading around pre-QE3 levels on another positive jobs report. Brien Lundin, editor of Gold Newsletter explained, “With the uncertainty of the presidential election looming, Gold needed a very bad employment number — something sour enough to cause the [U.S. Federal Reserve] to ramp up its [quantitative-easing] operations.”

After the storm:

Now that the major part of the storm has passed over the East Coast of the United States, there is one glaring question: How much is it going to cost to rebuild? The first estimate puts the bill somewhere in the range of $50 billion. There are some economists who are trying to put a positive spin on the situation by theorizing the rebuilding and cleanup efforts will bring financial stimulus into the area. However, research has been done on the subject and it does not seem likely to play out in that fashion. “It would be naïve to put forward the view that a hurricane is in some sense a stimulus for the economy,” wrote IHS Global Insight U.S. Economists Gregory Daco and Nigel Gault. “There’s no guarantee that reconstruction activity will be extra activity, on top of what would otherwise have occurred, rather than a substitute for that activity.” Even though Wall Street opened back up for business Thursday it did not seem like it. Jonathan Corpina, senior managing partner at Meridian Equity Partners in New York, is quoted saying, “I was driving in at 5:45 this morning in the dark, but the red and blue lights of the exchange were on, and it was clear that ours was the only building down here that was functional.” Trading started strong but moderated during the day.

Europe continues to send mixed signals:

One of the catalysts behind the lower gold price is a stronger U.S. dollar value. One of the reasons for the strong dollar is a weak euro. More trouble in the eurozone is helping the dollar’s rise. One eurozone official stated, “It is clear that Greece is off track and there is no chance they will cut the debt to 120 percent of GDP in 2020 as envisaged. It will be rather 136 percent, and this would be under a positive scenario of primary budget surplus, a return to economic growth, and privatization.” Reports out of the region say that Greece will need even more aid, this time to the tune of about $39 billion. The news out of other European countries has not been much better. The austerity program in Spain to cut the public deficit caused the country’s recession to extend into the third quarter. Spain’s gross domestic product receded by 0.3 percent in the past quarter, marking the fifth straight quarter of contraction. In fact, it is speculated that the only reason the contraction wasn’t larger is because families are making big purchases ahead of a looming tax hike. Even while there are some countries showing cause for concern, the overall picture may not be so bleak. Reports from two of the leading European financial institutions have shown signs of hope in a failing economy. Even though the news of a financial collapse in the region was common, the new banking reports have given talk to a strong recovery. UBS CEO Sergio Ermotti was quoted in a recent article as saying, “I’m very pleased with the way we performed in the third quarter…it really started bad but…across the board we were able to manage profitability in all the segments of the bank. If you look at wealth management we had the best quarter in five years in terms of making money.”