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Weekly Gold & Silver Market Recap - 10/18/2013

GOLD BOUNCES DURING MONDAY TRADING

The week began with an unstable U.S. economy as the government headed into its second week of being partially shut down. Gold received a sharp increase during Monday trading as U.S. political leaders failed to reach a deal on the government shutdown and debt ceiling issue. The divide between Senate Democrats and Republicans widened, with Democrats unwilling to agree to any deal that continued the automatic spending cuts known as sequestration. CMC Markets UK senior sales trader Toby Morris said, “Even with ‘constructive discussions’ on Sunday, no details have really been given about what that entails, leaving markets as confused as ever about what we are waiting for.” Silver, Platinum and Palladium prices were up for the day as well.

WEAK OUTLOOK FOR U.S. DOLLAR

Economic strategists cut U.S. dollar forecasts for the third month in a row in response to the government shutdown and debt ceiling crisis. Westpac Banking Corp and Credit Suisse Group AG, among other firms, reduced estimates by an average of 1.2 percent as compared to currencies such as the euro, pound and yen. According to Andrew Milligan, head of global strategy at Standard Life Investments Ltd., faith in the dollar has been eroded by repeated episodes of U.S. government dysfunction. “Lasting damage is being caused to the view that the U.S. currency is the reserve currency. It encourages people not to hold so much in dollars and to hold slightly more in other currencies,” Milligan said. Historically, the value of Gold and other Precious Metals show a negative correlation to the value of the dollar.

METALS FLAT WITH NO GOVERNMENT DEAL ON TABLE

Precious Metals prices were flat Tuesday with no real deal in the works to reopen the U.S. government.  As U.S. leaders worked on both a debt ceiling deal and the government shutdown, tapering of quantitative easing (QE) remained in the back of many investors’ minds. When asked his thoughts on the government avoiding a debt default, Eric Green of TD Securities said a good outcome could “push the normalization of [monetary] policy further in to the future” and raise the “possibility that tapering turns more aggressive when it does start.” This could raise the potential for volatility in the market, which, as Green went on to say, “may handicap the [Federal Reserve’s] capacity to organize a withdrawal from QE within a market fixated on the flow effects of Fed purchases.”

GOLD RECEIVES BOOST FROM WEAKENED U.S. DOLLAR 

Gold received some much needed support Wednesday as bipartisan leaders of the U.S. Senate agreed to a solution to resolve the fiscal impasse and raise the U.S. borrowing limit. The Senate and House were to vote later in the day, with President Barack Obama reportedly supporting the agreement. “The compromise we reached will provide our economy with the stability it desperately needs,” Senate Majority Leader Harry Reid said. Since the government shut down, Gold had dropped about 4 percent by Wednesday due to large sells, which were intensified by technical selling.

U.S. DOLLAR DECLINES FROM LAST MINUTE GOVERNMENT DEAL

Once an official deal was announced as in the works to end the U.S. government shutdown, the U.S. dollar automatically fell 0.2 percent against foreign currencies, which boosted Gold. “The dollar’s weakness is helping Gold,” Citigroup Inc. futures specialist Sterling Smith said in a telephone interview. “Also, higher metal and energy prices are helping.” Senate leaders were able to reach an agreement the day before the U.S. would officially default on its debt. The last minute deal may be to blame for a lower U.S. dollar, as most investors believe the damage already had been done to the economy.

U.S. DOLLAR DOWNGRADED BY CHINESE RATING AGENCY

It was reported Thursday morning that Chinese rating agency Dagong downgraded the U.S. sovereign debt rating, saying that the U.S. “government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future.” This caused the U.S. dollar and stock futures to fall. The weekly jobless claims report was released Thursday and showed claims dropped by 15,000, which was lower than the predicted drop of 18,000. The report’s release caused the dollar and stock futures to fall further and Precious Metals prices to rise further.

GOLD RISES ON PROMISE OF MORE GOVERNMENT SPENDING

The Gold price rose significantly Thursday as policymakers in Washington approved a debt ceiling arrangement that ended the U.S. government shutdown. The last-minute deal raised the debt ceiling and allowed the government to avoid technical default on debt obligations. “In a nutshell, we are back to business as normal where the U.S. government spends way too much money; which we have to borrow on the global market,” H.C. Wainwright LLC managing director Jeffrey Wright said. “We have no realistic way to pay it back and even with a ‘shrinking’ rate of deficits, the situation is not sustainable.” With the promise of continued borrowing from global financiers, the highly anticipated reduction of QE measures will inevitably be postponed. “Gold is the natural vehicle to counterbalance this behavior and is going higher once again,” Wright added. Though many catalysts for the movement of Gold have been bearish in recent months, delaying a decrease in monetary easing and the chaotic dealings among officials in Washington could lend support to Precious Metals prices.

GOLD RISES ON DIMINISHED TAPERING CONCERNS

On Friday, Gold headed toward its biggest weekly gain in nearly two months, settling just below $1,320 an ounce due to investor expectation that Fed tapering will be postponed once again. “We're now focusing on two things: the next time we'll have a debate on the (debt ceiling) issue, which is February, and tapering,” Citi analyst David Wilson said. “The debate has moved on from if to when (tapering will happen), so that will be continually factored into the Gold price.” Gold has fallen 20 percent this year on the expectation of the Federal Reserve tapering their monthly bond buying program.

At 5:15 p.m. (ET), the APMEX Precious Metals spot prices were:

  • Gold, $1,318.50, Down $6.50.
  • Silver, $21.99, Up $0.00.
  • Platinum, $1,439.50, Up $3.60.
  • Palladium, $742.60, Up $3.90.

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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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