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Weekly Gold & Silver Market Recap – 8/16/2013

GOLD RISES ON ASIAN ECONOMIC NEWS

Precious Metals experienced an extraordinary week as prices trended upward from the factors supporting them.  Beginning Monday, Gold futures traded higher as SPDR Gold Trust Fund, the world’s largest Gold exchange traded fund (ETF), substantially increased its holdings by 1.8 metric tons, marking its first growth since early June.  “The higher-than-expected import growth indicates a Chinese domestic-demand recovery, which will bode well for Gold demand,” Sharps Pixley director Austin Kiddle said. While the desire for Gold ETFs in the U.S. has waned over the last several months, electronic Gold holdings from Eastern nations like China and Japan have stayed constant despite the yellow metal being down nearly 21 percent this year. According to Kiddle, this data indicates “that Asia and emerging markets will help shape the future Gold demand.”

PHYSICAL DEMAND CAUSES BACKWARDATION

Gold caused some uproar Monday as analysts began suggesting the yellow metal has gone into backwardation, meaning the current spot price is higher than the future contract price. The COMEX division of the New York Mercantile Exchange showed December delivery for Gold rose by $22 to $1,334.20 an ounce, while October’s contract reported $1,334.30 an ounce and the spot price was $6.87 higher. "[This jump in Gold] is the backwardation of the near-buy," RBC Capital Markets Precious Metals strategist George Gero said. "There seems to be demand for the physical." Typically when backwardation occurs, supply begins to see pressure, which can cause a price increase. According to Commerzbank AG, the China Gold Association reported the physical Gold demand for the first half of 2013 is 706.3 tons, nearly topping the 2012 amount of 832.2 tons.

FED ECONOMISTS SPEAK

The U.S. Federal Reserve’s future plans are unknown but are keeping everyone on their toes to see what may happen if fiscal policy is tapered or ended. The real question is whether or not quantitative easing (QE) has been effective for the U.S. economy. “Modest" boost to economic growth and inflation is how two Fed economists described QE2’s performance. "[E]stimates from a macroeconomic model suggest that such interest rate forward guidance probably has greater effects than signals about the amount of assets purchased," the economists wrote in a paper released by the San Francisco Federal Reserve.

SEASONAL GOLD DEMAND COULD BOOST THIRD QUARTER PRICE

Gold fell Tuesday for the first time in four days after a strong dollar and optimistic U.S. economic outlook increased the likelihood the U.S. Federal Reserve will soon rein in its monetary easing program. Strong economic data has outweighed negative data in 2013, which Jim Russell, senior equity strategist at U.S. Bank’s Private Client Reserve, said is “consistent with the Federal Reserve moving ahead with the first step of tapering purchases of both Treasury and mortgage-backed securities in the open market over the next few weeks.” Though the Gold price has taken a beating this year, worldwide demand for Gold is historically boosted in post-summer months as industrialized nations manufacture jewelry ahead of the various holidays. Along with figures that show China overtaking India as the number one buyer of physical Gold, the third quarter could be a robust period for the yellow metal.

GOLD REGAINS LOST GROUND

Gold held on to early gains Wednesday as the metal was able to recover from Tuesday’s losses. While Gold rose moderately, Silver rallied for the fifth straight session, reaching its highest level since mid-June. Analysts were anticipating Gold to break through its next resistance level of $1,350 per ounce following Thursday’s release of the July Consumer Price Index (CPI). Economists polled by Market Watch expected the CPI figures to be lower than June’s numbers, which had many predicting a rise in metals that could surpass the next technical barrier in the short-term.

STOCKS SLIDE AGAIN

U.S. stocks fell once again at the end of trading Wednesday due to impending stimulus tapering concerns. The S&P 500, which briefly broke through 1,700 for the first time, fell to roughly 1,685. The Dow Jones Industrial Average dropped more than 113 points at the close of trading. Though trading volume was 20 percent below its 100-day moving average, the ubiquitous anxiety surrounding a reduction of quantitative easing measures currently had traders and investors in somewhat bearish territory. “The market is scope-locked on [U.S. Federal Reserve] tapering in September,” ING U.S. Investment Management chief market strategist Douglas Cote said. “Quantitative easing is creating some excess in the financial system. The last thing [Fed Chairman Ben] Bernanke wants when he finishes his term is to be responsible for the next bubble.”

BIG DAY FOR METALS ON TECHNICAL BUYING

Following a slow start to Thursday’s trading session, Precious Metals prices were lifted substantially as Gold broke through key technical levels and continued unrest in the Middle East boosted the safe haven appeal of metals. "Today's move was mostly driven by technicals, and that spooked the bearish bets out of the Gold market," Axel Merk, chief investment officer of California-based Merk Funds, said. Gold had recently tried to surpass the $1,350 per ounce mark, with no success. However, once the barrier was breached, Gold quickly rose to roughly $1,365 per ounce, bringing other Precious Metals with it.  Silver was the top performing metal, as it headed toward its seventh straight session of gains with a 6 percent rise for the day. 

CONSUMERS HAVE GLOOMY OUTLOOK FOR ECONOMY

Precious Metals prices continued to slowly climb throughout Friday.  A report showing U.S. consumers are not as optimistic about the economy as forecasted prompted investors to turn to alternative investments. Saxo Bank general manager Ole Hansen explained, “Investors are so concentrated on the whole talk about tapering that any disappointing U.S. data can bolster prices. People are pricing in the fact that the Fed will keep interest rates low for quite a long time and that's positive for Gold.”  Historically, an environment supportive of low interest rates pushes investors toward non-interest bearing assets like Precious Metals.

At 5:35 p.m. (ET), the APMEX Precious Metals spot prices were:

  • Gold, $1,377.00, Up $14.10.
  • Silver, $23.27, Up $0.25.
  • Platinum, $1,529.20, Down $4.10.
  • Palladium, $765.60, Up $7.30.

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Disclaimer:
APMEX’s ‘Market Reports’ provide our readers with a review of spot price activity and some of the factors that may be affecting the market for precious metals, three times during the trading day. While the information is obtained from sources we believe to be reliable, we do not guarantee its accuracy or its completeness and we encourage you to conduct your own investigation prior to making any decision based on the information. The "News and Commentaries" are not intended as a comprehensive discussion and there may be other factors that may be affecting the financial marketplace. These "News and Commentaries" are provided for informational purposes only and do not constitute a recommendation by APMEX to hold, to purchase or to sell any precious metal product. All orders, all purchases and all sales, if any, are subject to the terms of the User Agreement and other applicable policies.

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