Posted on January 04, 2016
It appears that investors are anxious to get things done now that the new year has begun. Following a seven percent slide in Chinese equities overnight, the U.S. stock market is firmly lower while oil and gold move sharply higher. The dollar index is relatively flat to start the new trading week.
Gold is sharply higher this morning as investor anxiety is likely fueling interest in perceived safe haven assets. Chinese stocks overnight were beaten up badly, in fact, shares were halted once the daily limit had been reached. A key manufacturing index showed a decline from the previous month and also registered its 10th consecutive reading under the 50 mark signaling contraction.
This is not the first time a significant sell off in Chinese equities has driven U.S. markets lower. The end of the summer saw some significant declines in U.S. stocks as Chinese equities saw significant losses. Although the markets then went on to largely recover, it goes to show the massive influence that Chinese markets have on the rest of the world.
In addition to worries over China, unrest in the Middle East is also causing investors anxiety. Saudi Arabia cut ties with Iran following an attack on its embassy there. The conflict appears to stem from the execution of an Iranian cleric and others over the weekend that Saudi Arabia believed were terrorists. The current turmoil being seen may drive volatility in crude oil prices, which are higher today.
As the new year gets under way, investors may look to reallocate assets and this could also contribute to volatility in the coming weeks. While gold is seeing buying interest today on its safe haven appeal, the yellow metal still has many hurdles remaining. If, however, the selling being seen in stocks today is more than a short-term event, gold could stand to benefit further as investors seek out alternatives.
Gold is also likely seeing some shorts being squeezed today helping to drive prices higher. Gold has been relatively range-bound in recent weeks and many market participants may simply be taking a “wait and see” approach to gold at this point. Gold may need to see higher prices sustained before gaining more traction and fresh buying. Of course, with many wild cards currently up in the air, the first several weeks of the new year could potentially prove to be very interesting.