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Weekly Gold & Silver Market Report – 10/11/2013

WEAKER DOLLAR BOOSTS GOLD FOR EARLY GAINS

On Monday, Gold benefited from a lower dollar as policymakers in Washington failed to reach a consensus on a budget bill. As the October 17 deadline for reaching the borrowing limit nears, investors and analysts await the potential for greater market volatility. The result of the budget impasse has been a partial government shutdown that is weakening the economy and delaying the release of key economic reports. "The whole story about the U.S. is clearly key for financial markets at the moment ...the general view on it is that a solution will be found and we will probably see a rebound in markets in general,” Credit Suisse analyst Karim Cherif said. "Sentiment remains hesitant towards Gold, which has been reflected in the market positioning," Barclays analysts said in a note. "While the temporary U.S. government shutdown has not proved to be a positive driver for prices, the risk of a debt ceiling breach holds scope to spark interest given Gold's response in 2011."

WHAT DOES THE CENTRAL BANK KNOW ABOUT GOLD THAT WE DON’T?

With Gold in the midst of its first bearish year in more than a decade, many economic experts and Gold bugs are currently baffled by its recent price action. Since its peak in 2011, Gold reserves at central banks have lost more than $545 billion in value but the banks continue to pile it on. In 2012, central banks added 535 tons of Gold bullion and are expected to add another 350 tons this year. However, as policymakers continued the onslaught of buying, investor sentiment wavered after reaching its all-time high. Now, many wonder if central banks are continuing their tradition of buying when they should be selling or if they see long term volatility and the need for their own insurance policy in the form of Gold.

FOCUS REMAINS ON GOVERNMENT SHUTDOWN

On Tuesday, the U.S. government shutdown entered its eighth day with some positive news finally emerging from Congress. Senate Democrats began looking ahead to the debt ceiling debate and the possibility of giving President Barack Obama the ability to raise the debt ceiling for a year. Henrik Drusebjerg of Nordea said, “Everyone is focusing on the politicians, and last night we saw a slight improvement in negotiations among Republicans and Democrats. It’s nothing close to a final solution, but still a slight improvement.”

ANALYSTS: FED COULD POSTPONE TAPERING

Both Gold and Silver prices traded lower Tuesday morning, possibly reacting to the uptick in U.S. stock futures. Mitsubishi analyst Jonathan Butler said, “There is a realization that as difficult and serious this budgetary situation in the United States is, eventually a solution will be found and the country won't default. There is always the outside chance that this may happen and that may be what is providing a little bit of support to Gold but it's not really that convincing for many investors.” That being said, Commerzbank analysts added, “The [U.S. Federal Reserve] will probably postpone its retreat from quantitative easing, which could also help to push prices up.”

OBAMA NOMINATING BERNANKE’S SUCCESSOR PROVIDES SUPPORT TO U.S. DOLLAR

Precious Metals prices fell quickly Wednesday after the U.S. dollar rose from eight-month lows. The dollar reacted before and after President Barack Obama nominated Federal Reserve vice Chairwoman Janet Yellen as current Fed Chairman Ben Bernanke’s successor, ending some uncertainty in the markets. Peter Fertig of Quantitative Commodity Research said, “A default of the U.S. government should be positive for Gold, because it would be the only safe haven U.S. investors would have. That Gold is not reacting so strongly to the developments in the United States is surprising.”

FEDERAL RESERVE MINUTES RELEASED

The minutes from September’s Federal Reserve meeting were released Wednesday and it revealed that the decision to not taper the monthly bond-buying program was a difficult one. "All members but one judged that it would be appropriate for the Committee to await more evidence that progress would be sustained before adjusting the pace of asset purchases," the minutes said. Apparently recent U.S. economic data is not indicating that the job and housing markets are moving toward a recovery. If the U.S. economy had shown improvement, the Federal Reserve would have chosen to cut back monetary policy as they previously announced.

DEBT CRISIS BEGINS TAKING CENTER STAGE

Gold prices lost momentum on Thursday as Democrats and Republicans were supposedly attempting to find a solution to the U.S. debt crisis.  As all eyes remained on Washington, U.S. stock prices moved upward and had the second-best session of the year. Danske Bank analyst Christin Tuxen said, “Both Republicans and Democrats are starting to be a little bit more willing to find a solution and that's what is dragging Gold lower.”

POSSIBLE BUDGET DEALS PRESSURE GOLD

The U.S. dollar headed for its third straight day of gains Friday, all while continuing to put pressure on the Gold price, which is headed for its second straight week of losses. This is most likely due to signs that Washington is close to reaching budget and debt ceiling deals. Michael Widmer of Bank of America Merrill Lynch said, “You had a very short-lived move higher on the back of the debt ceiling talks but … the market just discounts a lot of the bullish news at the moment, looking at the improving underlying economic picture.”

At 3:32 p.m. (ET), the APMEX Precious Metals spot prices were:

  • Gold, $1,271.80, Down $27.10.
  • Silver, $21.34, Down $0.59.
  • Platinum, $1,371.90, Down $23.10.
  • Palladium, $713.50, Down $0.10.

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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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