Daily Nugget: U.S Economic Data, Asias Precious Metals Hub and the European Bond markets
U.S Economic Data
Gold was trading below $1,300/oz yesterday as investors anxiously awaited the end of a Federal Reserve policy meeting. The outcome of the meeting will reveal U.S central bank’s view on the economy and monetary policy. The Fed concludes the two-day meeting today, where policy makers are expected to announce reductions to bond purchases again. This follows on from figures indicating that consumer confidence had risen to an almost seven-year high in the U.S.
Due to the above, the U.S dollar has held a six-month high against a range of other major currencies, which has put pressure on precious metals. This left investors reluctant to hold large positions ahead of the major U.S economic data this week, including GDP on Wednesday and non-farm payrolls on Friday.
However, even though consumer confidence has hit such a high, Andrew Grantham, senior economist at CIBC, has aired his view that stronger optimism doesn’t always result in increased spending. He said, “detail of today’s report doesn’t suggest households will be opening their wallets any wider in the coming months”. If this is shown to be true it will mean further delays for the increase in U.S interest rates, which will help maintain demand for gold.
Bond Markets Signal
Europe’s most-indebted nations are currently able to borrow at some of the best rates in years. However, the German bund, a key gauge of whether the economy is recovering or not, is at a rate so low its usually reserved for times of turmoil. This is due to global central banks keeping interest rates artificially low to help encourage economic growth. However, other geo-political tensions have also helped to bid up demand for the safer government bonds in the advanced countries and also the demand for gold.
Russia has continued to support separatists in the Ukraine, which has prompted the U.S and EU to impose tougher sanctions against Russian banks, energy, shipbuilding, and defence companies, restricting them from billions of financing sources. Also, Israel has persistently bombed Gaza.
With the central banks keeping interest rates artificially low, gold serves as a portfolio hedge when the bond and equity markets cave over rising yield worries.
Is London Being Overtaken By Asia as a Precious Metal Hub
As I previously spoken about over the last 2 weeks, Singapore is quickly becoming a precious metal hub. The announcement of a kilo-bar contract, and more recently, the introduction a new refinery in the Metalor Group, has boosted its reputation.
Hong Kong also maintains its status as an Asian precious metals hub as Brink’s Co (One of the worlds largest security and protection firms) is opening a new vault in the city. The vault will be finished towards the end of the year and will double Brink’s gold and silver handling capacity in the city.
Each of these gains for Asia is a blow to London. Coupled with the London gold fix fiasco we could start to see a real shift in confidence from West to East.