Weekly Gold & Silver Market Recap - 1/31/2014
PROFIT TAKING PRESSURES GOLD AND PLATINUM
Profit taking was to blame for Gold’s one percent fall Monday, ahead of Tuesday and Wednesday’s Federal Reserve meeting, as investors anticipated a second round of tapering to be announced. However, Gold did perform well last week, as it was up about one percent, for its fifth consecutive weekly upswing for the first time since September 2012. Platinum fell again for the second day in a row on Monday as South African unions attempted to reach an agreement for Platinum mine workers whom have been on strike since last Wednesday. “Platinum sold off as South African unions and management began mediation in their dispute,” Matthew Turner, analyst at Macquarie Group Ltd. in London, said.
GOLD AHEAD OF FOMC CONCLUSION
The Gold price dipped for a second straight session Tuesday as stronger equities and trepidation ahead of the conclusion of Wednesday’s Federal Open Market Committee (FOMC) meeting pushed investors away from Gold. The mild dip in Precious Metals prices reflected investor sentiment who believed the Fed would announce another limited reduction in the scale of monetary stimulus measures. Even with another taper many analysts and short-term traders believe the scale-down in volume of monthly asset purchases is already priced into markets. However, “Most physical buyers will ignore the noise and focus on the fact that the Fed’s monetary policies, along with most central banks in the world, remain extraordinarily accommodative even after the recent $10 billion taper,” Mark O’Byrne, executive director at GoldCore, said. “They are likely to continue accumulating until they see an actual, real tightening in monetary policies and an actual end to quantitative easing.”
EMERGING MARKET CRISIS, POOR CORPORATE EARNINGS PUSH INVESTORS TO GOLD
Worldwide currencies were weakened on the heels of an emerging markets (EM) crisis that helped push Gold higher Wednesday. Widespread outflows of cash from emerging economies have caused pervasive volatility among global and domestic equities. Disappointing corporate earnings data coupled with the EM tumult to lure investors away from stocks and into the traditional safe haven of Precious Metals. “Gold should be in demand as long as the turmoil persists,” Daniel Briesemann, an analyst at Commerzbank AG, said. “That’s why gold has recovered its early losses.”
METALS FIND SUPPORT
Precious Metals reacted exceptionally well to the Federal Reserve’s announcement of a further cut in fiscal policy, with Gold, Silver and Platinum ending Wednesday on a positive note. Gold has been thriving this year, already rebounding 4.25 percent so far. The market is optimistic for the yellow metal as it has been heavily desired in both China and India with hopes those trends will continue in 2014.
STOCKS STRUGGLE ON FED ANNOUNCEMENT
Following the news that the Fed will begin tapering $10 billion a month from its bond buying program, stocks quickly reacted negatively. "We would not be surprised to see the Fed increase its tapering to $15 billion or 20 billion at one of its summer meetings, and expect the Fed to be done tapering by the fall should the economy continue on its current path," U.S. Bank Wealth Management’s Jennifer Vail said. The Dow Jones Industrial Average fell roughly 219 points, while the S&P 500 lost 18.3 points and the Nasdaq fell 48.2 points. Data showed that for every stock that rose, an estimated three dropped on the New York Stock Exchange.
GOLD ERASES GAINS AS HIGHER STOCKS SUPRESS DEMAND
Gold gave back Wednesday's gains throughout Thursday as higher equities and a stronger U.S. dollar pushed investors away from the yellow metal. News that the Federal Reserve will continue tightening its quantitative easing package has sunk in, causing a reversal of initial gains realized after the Fed summit. “Initially, Precious Metals showed a somewhat positive reaction to the news with Gold rallying to a high of $1,270 [per ounce] overnight, but it has dropped quite sharply from there,” FOREX.com technical analyst Fawad Razaqzada said. As inflationary fear caused by the ultra-loose stimulus program subsides, Gold will need fresh motivating factors to break free from its current trading range.
POSITIVE CORPORATE EARNINGS GOOD FOR ECONOMY
As we near the halfway point of corporate earnings season, upbeat data has pushed U.S. stocks higher Thursday. As fears continue to swell concerning an impending market correction, strong earnings and continued economic growth will do much to quell some of the panic. “The fact we can print a quarter in which GDP growth was more than 3 percent, even though government spending contracted as much as it did, is unquestionably a positive,” Dan Greenhaus, chief global strategist at BTIG LLC, said. “The concerns over emerging markets are the dominant topic. To the extent this remains contained, the sell-off is likely to be limited.”
PRECIOUS METALS FLAT AS GLOBAL EQUITIES STRUGGLE
Precious Metals traded flat through Friday with Gold still set for a monthly gain. Around the globe, equities were down leaving market analysts to question what is in store for Gold. “There is a serious money flow from the equity market towards gold, and we think that this could continue for the next couple of weeks,” AvaTrade chief market analyst Naeem Aslam said. This is potentially big news for Gold which has historically been a safe haven for investors looking to get away from riskier investments in equities markets.
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