Gold gave back earlier gains, but remains above $1300, underpinned by broad geopolitical tensions and weaker shares. Ongoing concerns about the health of both the European and U.S. economies is also helping to underpin the yellow metal.
Renewed fighting in Donetsk has reportedly killed four, even as investigators arrive in the area to inspect the Malaysian airliner crash site. President Obama said, “The burden is on Russia now to insist separatists stop tampering with the crash site.” In general, international pressure on Russia has intensified since the downing of flight MH17.
This past weekend saw the most intense fighting of the Israeli incursion into Gaza. U.S. Secretary of State John Kerry is supposed to heading back to the middle east with the goal of negotiating another cease fire, hopefully one that both sides will respect.
The Bundesbank expressed concern that the German economy slowed in Q2. “”Industry shifted down a gear. As well as calendar effects, increased geopolitical tensions likely played a role in this,” according to the monthly report of the central bank.
The Financial Times reported this morning that even if the U.S. economy rebounds sharply in Q2, growth in the first half of the year is likely to come in below 1%. While many believe — or rather ‘hope’ — that the terrible Q1 results were an anomaly, optimism that the U.S. would see 3% growth this year has waned in recent months.
Consensus for the Q2 advance report, out next week (30-Jul), suggests the Q1 decline of -2.9% will be offset by a +2.9% rebound. However, policymakers’ and analysts’ expectations for Q1 were so wildly off the mark that I’m not sure anyone has a firm grasp on the reality at this point.
The dollar remains generally consolidative, near four-week highs as growth risks seem to be centered on Europe at this point. The return of volatility to global stocks has some concerned about those markets topping, which is helping to underpin the greenback and pushed U.S. yields back into the lower reaches of the recent range. The yield on the 10-year note is back below 2.50%, presently trading at 2.46%.
Low yields are generally favorable to gold and recent activity in the fixed income market seems to counter recent speculation that a rate hike is likely sooner than many are expecting. If upcoming economic data confirm the growth risks, the ECB and Fed will likely have to keep their feet on the monetary gas pedals, which should offer further support to the yellow metal.