Weekly Gold & Silver Market Recap – 11/1/2013
GOLD STEADY AHEAD OF MONTHLY FED MEETING
The Gold price traded relatively flat Monday as Precious Metals investors speculated over the future of the Federal Reserve’s quantitative easing program. With the recent government shutdown in Washington and uninspiring economic figures fresh in the minds of Fed officials, many economists expected no deviation from the current level of stimulus following the Fed’s two-day policy meeting later in the week. “The longer-term outlook for Gold has turned a bit more positive recently because the tapering is not a foregone conclusion considering how the U.S. data has developed over the last couple of months,” Saxo Bank senior manager Ole Hansen said. Gold has rallied six percent over the last two weeks and is hovering near five week highs.
STRONGER DOLLAR WEIGHS ON GOLD; QE EXPECTATIONS FUEL RECORD S&P FINISH
The Gold price suffered a mild drop from a five-week high Tuesday as the U.S. dollar rose against competing world currencies. “A lack of fresh, bullish fundamental news is keeping buyers scarce,” one analyst said. “The key ‘outside markets’ are also in a bearish daily posture for the Precious Metals – a firmer U.S. Dollar Index and weaker crude-oil prices.” Investors and analysts alike continued to ponder the future of the Federal Reserve’s liberal quantitative easing (QE) policy. The monthly two-day Federal Open Market Committee meeting began Tuesday. In the past, the meeting has been a platform for significant Fed policy announcements but few experts expected momentous news following Wednesday’s close. Most experts expected the bullion-friendly monetary easing program to continue until the second quarter of 2014.
FED STATEMENT SUPPORTS U.S. DOLLAR, PRESSURES GOLD
Wednesday, the U.S. Federal Reserve met market expectations by not tapering its $85 billion monthly bond-buying program. Recent economic data reflecting weaker than expected numbers for both unemployment and consumer confidence put a halt to the cutback in fiscal policy. “There is no explicit mention of the government shutdown or what impact it might have on the economy or the Fed's monetary policy,” Capital Economics chief U.S. economist Paul Ashworth said in a note. “It is possible that Fed officials want to downplay the recent two-week closure and the potential for another shutdown early next year because they still intend to begin tapering the asset purchases at the FOMC meeting in December.” The Fed statement failed to acknowledge last month’s government shutdown, which could push investors to be more concerned with the stability of the U.S. economy.
Gold dropped slightly during the Federal Reserve meeting once it was announced that economic activity is showing improvement. “The dollar strength is keeping Gold under pressure,” Pension Partners LLC chief investment strategist Michael Gayed said in a telephone interview. “The safe-haven premium is diminishing as the Fed sees signs of economic improvement.” However, the Fed made the decision to not taper for a specific reason, as Fed chairman Ben Bernanke has said in the past that quantitative easing will not be cut back until economic conditions progress.
QE REDUCTION CONCERNS CAUSE DROP IN PRECIOUS METALS
Concerns that a reduction in the current scale of quantitative easing (QE) may come sooner than later pulled Precious Metals prices down Thursday as the U.S. dollar strengthened versus a basket of other currencies. Some market analysts believe a potential taper of the Fed’s stimulus measures could be announced as early as December instead of the mid-2014 projections that have been forecast in recent weeks. However, most analysts are still anticipating a second quarter 2014 taper announcement. “The question remains how much of this extended [quantitative easing] is Gold pricing already?” Standard Bank’s Walter de Wet said. “Given that the consensus view is for tapering to start later in 2014, we believe that Gold is already reflecting this more accommodative policy stance to a large degree.”
DOLLAR BOOSTED BY EUROZONE INFLATION
The Gold price’s negative correlation to the U.S. dollar has held up since the Federal Reserve statement earlier in the week. Gold and Silver prices were lower during Friday trading as news in the U.S. and the eurozone continue to boost the dollar. Commerzbank analyst Daniel Briesemann said, “The weakness we have been seeing in Gold in the past two days is due to the after-effects of the [Federal Open Market Committee] statement and also the extremely low inflation rate in the eurozone.”
At 3:16 p.m. (ET), the APMEX Precious Metals spot prices were:
- Gold, $1,314.90, Down $10.80.
- Silver, $21.88, Down $0.04.
- Platinum, $1,454.40, Up $5.00.
- Palladium, $741.00, Up $3.20.
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