Weekly Gold & Silver Market Recap – 1/11/2013
GOLD MOVES UP, DOWN, ENDS FLAT
Gold started this week off flat after last week’s drop due to uncertainty in the market. The lower price did lead to more buying across the globe. It held flat Monday following last week’s pullback as speculators remain uncertain over the future of the Federal Reserve’s quantitative easing (QE) program. The Fed’s stimulus policy has been supportive of the Gold price since its inception in 2010 as the creation of “new money” sparks inflationary fears. The concern that QE might be halted following positive economic news in recent months was the reason for the downward pressure on the Gold price. Many physical bullion investors will take advantage of lower prices, much like central banks in the Far East. “Gold prices have gone down a lot since December and we are seeing very good physical demand from India, China and Southeast Asia,” one Singapore-based trader said. The market started taking notice and prices started to rise. After three consecutive days of losses, Gold has made a positive turn around. There has been a worldwide push for physical demand as of late, which is not unusual for this time of year. “Gold historically has shown a tendency for strong demand, and prices, in the second half of January. This can be largely attributed to demand from China in the run-up to the Chinese New Year celebrations,” Gold Newsletter editor Brien Lundin said. Later in the week there were rumors of the United States ending its monetary easing program, and that erased earlier gains. According to James West, portfolio adviser to the Midas Letter Opportunity Fund, there are two sides to the easing argument. He stated there are some who believe the easing will continue. “As far as Gold is concerned, the buy-side pressure is from investors who believe the rhetoric in the media concerning the prospect of [quantitative easing by the U.S. Federal Reserve] ending early is not credible,” West said. On the other side, “there are those who do believe that quantitative easing will come to an end as the economy improves,” he added. Whether or not monetary easing continues, it is most likely going to have an effect on the Precious Metals market just as it has in the past. The next day, Gold prices went back up with news out of a major economic power. Gold’s price received a boost after the European Central Bank (ECB) indicated it would not cut interest rates in the near future. ECB President Mario Draghi has concluded the eurozone will continue to struggle with growth for the majority of 2013, and he suggested a slow recovery in the latter part of 2013. “Gold was oversold after the Fed minutes. I don't see the Fed will be doing anything to withdraw stimulus soon,” Bill O'Neill, partner of commodities investment firm LOGIC Advisors, said. “Clearly, Mario Draghi is leaving room for accommodation, and the overall global pattern of central bank easing continues to be there.” At the end of the week investors are still looking for indications of movement triggers.
GLOBAL NEWS MAKERS
There have been many headlines that have influenced Precious Metals prices this week. The European debt crisis has continued to spread into many countries, affecting the growth and stability of each economy. For instance, Spain has endured a full year with an unemployment rate exceeding 25 percent, and analysts suggest the country will probably see these numbers for an extended period of time. “No economy (as far as we are aware) has ever sustained this unemployment rate and maintained a peg to a fixed exchange rate,” Charles Robertson at Renaissance Capital said in a report. Most damaging of all, he said, was the absence of hope: “For households, wages are still likely to fall to boost competitiveness. Households are deleveraging and defaulting, not borrowing more to fuel consumption.” News reports indicating the European Central Bank (ECB) has no immediate plans to extend near-term rate cuts were the main catalysts moving the Gold price. The “ECB and Bank of England left policy in place and did not lower rates; ECB President Draghi was optimistic on stabilizing economic conditions in Europe; and then U.S. weekly jobless claims all contributed to weaker U.S. dollar, sending Gold higher,” Jeff Wright, managing director at Global Hunter Securities, said. Platinum and Palladium are also on the rise, outpacing Gold, due to the export figures from China. Commenting on Thursday’s jump in Precious Metals prices, one Credit Suisse analyst stated that this move is helpful and opens the door for the Gold price to make a run towards its next resistance level at $1,703. In China, the celebration of the new year has historically been good for Gold, and this year has been the same. Physical buying of Gold has kept the metal in the black this morning as Asian markets are preparing for the Chinese New Year. Natixis analyst Nic Brown said, “We find ourselves just ahead of Chinese New Year, which seasonally is one of the strongest times of the year for Gold demand.”
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