Weekly Gold & Silver Market Recap – 1/10/2014
FLASH CRASH SEES GOLD DROP $30
Precious Metals began the week by trading flat after a brief “flash crash” early Monday morning. A large trade of about 4,200 contracts were dumped just after 10 a.m. (ET), causing the Gold price to tumble by $30 per ounce before recovering almost immediately. Ross Norman, chief executive officer at Sharps Pixley, said that the trade “looks to be shorts defending their substantial positions.”
HOW WELL IS THE U.S. ECONOMY PERFORMING?
A study by two Harvard economists said that the American economy is doing reasonably well, but only when you consider what an economy would normally look like after a major financial crisis. Considering nine major financial crises in the country, and with certain adjustments, the average decline in gross domestic product is about nine percent, with a recovery time of nearly seven years. The crisis of 2009 showed a five percent drop with a six-year recovery.
GOLD STILL SHINES AS AN INSURANCE POLICY FOR INVESTORS
Gold continues to be a positive venture for investors as Ross Norman, chief executive officer at Sharps Pixley described the yellow metal as, “In fact, [it’s] the cheapest insurance in town against economic difficulties.” Jeffrey Wright, managing director at H.C. Wainwright LLC, expected the upcoming Federal Open Market Committee (FOMC) minutes and this week’s jobs report to pressure Gold. “I am anticipating the FOMC minutes to reveal a larger consensus for tapering of [quantitative easing] in 2014, and expect a further impact in the near term,” Wright said. “Employment numbers could be mixed; with seasonal holiday hiring in this report. So both data points should be negative for gold after release and could take us back towards $1,200.”
QUANTITATIVE EASING STILL CENTRAL INVESTOR FOCUS
Gold took its largest dip in a week on Tuesday as investors prepared for Wednesday’s release of the minutes from the Federal Reserve’s December policy meeting. “People want to know how serious the Fed is about easing, and tomorrow more details will come out,” TD Securities head of commodity strategy Bart Melek said. Anticipation that reduced stimulus measures will positively impact the dollar put pressure on Precious Metals prices. Following last week’s short-covering rally, Gold looked for a foundation as an improved economic outlook weighs heavily on the metal.
UPCOMING ECONOMIC NEWS PRESSURES U.S. STOCKS
U.S. stocks reversed a three-day losing streak after optimistic investors anticipated fourth quarter earnings reports and Friday’s Labor Department figures. “Everyone’s waiting on the Fed minutes tomorrow and the jobs report on Friday could be a driver of further confidence,” Wells Fargo Private Bank chief investment officer John Lynch said. Equities investors waited to see if ongoing positive date could propel stocks further as they continued to reach record levels.
PRECIOUS METALS, U.S. STOCKS DIP ON POSITIVE ECONOMIC DATA, FED MINUTES
Precious Metals fell slightly throughout the day Wednesday due to the private sector reporting a better than expected increase for jobs in December. Also, the minutes from the Federal Reserve’s December Federal Open Market Committee meeting were released this day. The minutes showed a consensus amongst participants who believe it was time to taper fiscal policy as the program’s benefits appear to have diminished over time. “Overall there is nothing in the minutes to change our view, based on Fed Chairman Ben Bernanke’s comments in the post-meeting press conference, that the Fed will continue to reduce its purchases at a pace of $10 billion at each meeting this year,” Capital Economics chief U.S. economist Paul Ashworth said.
The S&P 500 dropped following the release of the Fed minutes. The Fed’s bond buying program boosted the S&P 500 by nearly 30 percent in 2013, but with tapering in 2014, the market could see a reverse reaction. “The financial markets really didn't move at all, but typically history would suggest they need a little bit of time to just digest these things,” Darrell Cronk, regional chief investment officer of Wells Fargo Private Bank, said.
INVESTORS SHOW RESTRAINT AHEAD OF JOBS REPORT
The Gold price remained flat Friday morning as cautious investors awaited Friday’s non-farm payroll figures. Physical demand for Precious Metals continues to buoy Gold as upbeat economic data weighs on the yellow metal’s short-term prospects. “Demand for gold coins and bars was very strong last year on account of the falling prices, a trend which appears to be continuing at the start of the year,” Commerzbank AG, said. Preliminary estimations predict improvement in the jobs market. Analysts predict Gold and Silver will remain range-bound until the release of tomorrow’s employment numbers.
DISAPPOINTING JOBS REPORT BOOSTS GOLD, SILVER
Gold and Silver prices surged after the release of the monthly jobs report Friday, which showed that the economy added 74,000 jobs in December. Economists expected an increase of 193,000, so the number missed the mark by a large margin; however, the unemployment rate fell to 6.7 percent. That figure may be skewed by the number of people dropping out of the labor force altogether. Gold rose by 1 percent and Silver rose by nearly 2 percent on the news, while U.S. stock futures and the U.S. dollar turned sharply lower.
Gold investors look to the jobs report as a gauge of the health of the U.S. economy, specifically regarding the pace of the U.S. Federal Reserve’s tapering of quantitative easing. Natixis analyst Bernard Dahdah said, “It will take a few more months of good figures in terms of U.S. employment data to see the Fed accelerating the pace of tapering.” After the disappointing report, some investors will now wonder if that could be in jeopardy.
At 4:30 p.m. (ET), the APMEX Precious Metals spot prices were:
- Gold, $1,248.20, Up $16.30.
- Silver, $20.17, Up $0.44.
- Platinum, $1,438.10, Up $16.20.
- Palladium, $744.80, Up $8.30.
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