Gold turned significantly lower because of the good bounce in equities and a round of profit taking. Fundamentally though, for gold, not much has changed. We are still in an uncertain climate and a solid haven is always in demand during periods of high volatility.
Let’s see how European and Asian markets and events, plus the talking up of some markets by officials, affected gold today.
Once again ignoring true fundamentals, crude oil rose on the breath of a promise from oil-producing countries that OPEC and a few other big players will ease back on production, which theoretically would force prices up.
So far this is a pipe(line) dream. A few key players are not and will not come on board anytime soon. The first of those is Iran. Iran is just coming off the sanctions imposed on it by western nations and has tens and tens of million of barrels it wants and needs to move out of storage and into the market. Europe is Iran’s chief customer and Europe wants the cheap Iranian oil. Current estimates say that Iran is producing about 1.3 million barrels per day and can and probably will go as high as 1.9 million per day.
The U.S., Canada and Mexico are also not on board this production-cutting jamboree. In fact, the U.S. and Canada will probably re-ramp up marginal production wells/facilities as soon as the price per barrel gets near $50.
Regardless, the Europeans bought the OPEC rumor chatter not so much through bidding up the price of crude, both West Texas Intermediate and Brent North Sea, but by pushing up equities.
Additionally, Mario Draghi, head of the European Central Bank addressed continuing jitters about sluggishness in the eurozone and even the threat of deflation. He said that the ECB would take any necessary steps to ward off those scenarios, including the purchase of more sour assets and lowering the interest rate further into negative territory.
One trend Draghi and the ECB will f ind extremely difficult to counter is the one caused by the effect of lower interest rates on banks’ bottom lines. That drags down the fincancial sector and the European stock markets as a whole.
European shares rallied 3.00% before falling back to a 2.00% rise. Asian stocks snapped a five-day losing streak as China's central bank fixed the yuan at a much higher rate. This seems ridiculous to us, especially as China hopes to become a true reserve currency nation and not a name on a list. Stronger risk appetite pushed the U.S. dollar up against the yen and euro.
Regardless of the yuan, in Tokyo the Nikkei oared out of its slump, rising 7.00%. Shanghai was a little soft and Hong Kong made some nice, if narrowly confined gains.
One more temporal condition entered the gold market today and will hang about for a week, give or take. Chinese markets re-opened after the Lunar New Year holiday with the metal around $60 an ounce higher than on February 5, when the holiday closing began. The end of Lunar New Year also depresses physical demand as gift giving comes to an abrupt halt.
Wishing you as always, good trading,