Gold slid in overseas trading on Monday, after notching the biggest weekly gain in two-months last week. The yellow metal was initially weighed by a rebound in the USD, global shares and oil.
However, gold is presently in the process of recouping those losses as those other markets reversed course. The DJIA was originally up more than 100-points this morning, but is now down 40-points. Oil was unable to sustain intraday gains and has subsequently collapsed to new 5½-year lows. While the dollar index gave back intraday gains as well, activity remains confined to Friday’s range.
The volatility that has emerged recently in commodity and stock markets has provided support to gold as investors seek safety. Inflows into (ARCA:GLD) last week were the largest in five-months and money managers increased their net long position in gold to the highest in four-months as well.
The broad-based drop in commodity prices is a bad omen, reflective of mounting global growth risks. Prices for everything from energy, to industrial metals to agricultural products have all fallen recently.
Much of this is a result of slowing overseas economies. However, it seems more likely that these economies will drag the U.S. economy back toward recession, than the U.S. will drag the rest of the world back toward recovery.
Japanese voters reaffirmed their confidence in Prime Minister Shinzo Abe’s coalition yesterday. “We heard the voice of the people saying ‘Move forward with Abenomics’,” said Mr. Abe. The yen actually firmed on the news, as the vote was also an indication that the revolving door to the PM’s office may be spinning a little more slowly (at least for now). Nonetheless, with the nod from voters, the destruction of the yen will assuredly continue.
The FOMC meets tomorrow and Wednesday. Steady policy is widely expected, although there is still some debate regarding a modest shift in guidance. Along with the policy statement, the FOMC will release its forecasts on Wednesday, and Chairwoman Yellen will hold a press conference.