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Precious metals recovered from early losses this morning after the release of the Consumer Price Index showed the smallest year-over-year increase in nearly two years. The better-than-expected report could support the Federal Reserve’s looming decision on another round of monetary stimulus. Also, a key business gauge contracted unexpectedly for the first time in nearly a year. The “Empire State” index showed a drop to minus 5.85 from 7.39 last month.
Quantitative easing (QE) from either the European Central Bank (ECB) or the Fed seems to be the key factor in a rally for the price of Gold. Should either central bank announce a round of QE, prices are likely to increase due to the results of such action all being supportive of the Gold price. Investors shouldn’t be surprised to see action from Europe before the U.S., however. London’s Marex Spectron said in a note, “The eurozone appears to continue to struggle, while the U.S. keeps surprising the market with positive figures. This only enhances the chance the the ECB is more likely to act before the Fed.”
Matthew Lynn of Marketwatch writes that the euro as a currency is much like a zombie. He writes, “Some countries can’t use the euro for imports because of fears that drachmas or lire may suddenly replace euros.” Lynn explains that oil traders, for instance, may be wary of selling oil to a country like Greece, because when payment is due six months down the the road, they may not be paying in euros, but in something worth far less. “When a currency stops working the damage done to the economy is immediate. Trade stops flowing. Investment gets postponed. Capital flees. Very quickly, unemployment starts to rise, and output declines. That is exactly what is happening in the eurozone right now,” he writes.
At 9 a.m. (EDT), the APMEX Precious Metals spot prices were:
- Gold, $1,601.10, Up $0.20.
- Silver, $27.92, Up $0.05.
- Platinum, $1,398.70, Down $1.50.
- Palladium, $577.90, Down $2.00.
The euro fell to a four-week low against the dollar today, held down by a record low interest rate from the European Central Bank and a rise in the value of the dollar brought on by a report that showed more American jobs were created in June than previously thought. While the unemployment rate usually has little to no correlation to the value of the dollar, this particular announcement eased expectations that the Federal Reserve will embark on further stimulus measures. This, in turn, lowered inflation fears, leading to a rise in the dollar. Almost the opposite was true in Europe, where stimulus measures are fanning the flames of inflationary fears.
Retail sales and service sector growth data both came in lower than expected by analysts, adding to the pessimism about the direction of the American economy. Erik Johnson, U.S. economist at IHS Global Insight, cited the stronger dollar as one cause of the slowdown, pointing to lower exports as the driver of slower growth. “While the euro-zone recession intensifies, export orders should continue to suffer, especially as stronger demand for the dollar leaves U.S. businesses less competitive in external markets,” Johnson said. Market Watch quoted a wholesale-trade purchasing manager as saying, “Business is still growing, but there has been a definite slowing in growth.”
At 5 p.m. (EDT), the APMEX Precious Metals spot prices were:
- Gold, $1,606.20, Down $17.10.
- Silver, $27.72, Down $0.64.
- Platinum, $1,475.80, Down $14.10.
- Palladium, $586.50, Down $13.40.
- No Stimulus Anytime Soon (seekingalpha.com)
Gold Rebounds After Three-Day Selloff (WSJ)
Gold Demand in China Could Surge as Much as 30 Percent (MarketWatch)
Slow Time Ahead For IPOs After Facebook Experience (WSJ)
US bank earnings rose this winter to 5-year high (AP)
Greece, data weigh on Wall Street; techs slip (Reuters)
Weekly US jobless aid applications dip to 370,000 (AP)
Gold at 10-month low, holds on to $1,500 an ounce (MarketWatch)
Gold & Silver Decline: George Soros Nearly Quadrupled Gold Stake in Q1 (Fox Business)
Slump Persists: Greek Banking Jitters Scuttle Early Rally (Fox Business)
Fund managers reveal “best ideas” at Ira Sohn event (Reuters)
Fed Raises Stimulus Hopes, Treasurys Soar (WSJ)