Gold jumps as global markets fall

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Gold Bounces on Safe-Haven Demand, Short Covering
Monday January 04, 2016 14:00

(Kitco News) - Safe-haven buying amid keener uncertainty in world markets on Monday boosted gold prices. Unrest in the Middle East and weak Chinese economic data worked to lift gold to a three-week high, while putting downside pressure on stock markets worldwide. Gold and silver futures markets also saw some short-covering buying support. February Comex gold was last up $14.60 at $1,074.80 an ounce. March Comex silver was last up $0.067 at $13.87 an ounce.

The precious metals did back down from their daily highs as the trading day progressed. The key “outside markets” were in a bearish posture for the metals Monday as the U.S. dollar index moved higher as the day wore on, while crude oil prices posted modest losses.

There was anxiety in the marketplace to start the trading week and the new trading year Monday. World stock markets were under selling pressure partly due to rising tensions in the Middle East. Saudi Arabia executed what it said were terrorists over the weekend, including an Iranian cleric, which enraged Iran and other Arab nations. Saudi Arabia cut diplomatic ties with Iran after its embassy in Iran was attacked. 

Meantime, there was another downbeat economic report coming out of China that sunk Asian stock markets and has spilled over into weaker European and U.S. equity markets Monday. China’s stock market sank the daily permissible limit and trading was halted. The Shanghai stock index dropped nearly 7% on Monday. China’s Caixin manufacturing purchasing managers index (PMI) came in at 48.2 in December from 48.6 in November, for the 10th month in a row with a reading below 50.0. A number below 50.0 suggests contraction in the sector.

Adding to the marketplace worries were reports that Puerto Rico was unable to make and missed a debt payment to its creditors.

Interestingly, reports said the big U.S. stock market sell off on this first trading day of the year is the worst first-day-of the-year decline since the early 1930s. There’s an old market adage that says, as goes the first trading week of the year, so goes the entire year. If that adage plays out for 2016, it would likely be bullish for the precious metals, given that moves out of paper assets (stocks) tend to favor hard assets like metals.

In other overnight news, the Euro zone manufacturing PMI came in at 53.2 in December from 52.8 in November. A reading of 53.1 was forecast.

The U.S. manufacturing PMI was also a miss to the downside Monday, showing a reading of 48.2 in December from 48.6 in November. A reading of 49.0 was expected. The U.S. PMI report did give gold a brief boost to its daily high, but those gains could not be held.

Technically, February gold futures prices closed nearer the session high and hit a three-week high today. There is the potential for a bullish double-bottom reversal pattern to play out on the daily bar chart. However, bulls will need to show that important follow-through price strength this week to suggest the pattern to be an early clue that a market bottom is in place. Right now the gold bears still have the firm overall near-term technical advantage.