Weekly Gold & Silver Market Recap – 1/4/2013

Brandi Brundidge

1/4/2013 3:30:00 PM

FISCAL CLIFF RESOLVED, BOOSTS COMMODITIES

The beginning of the week was hectic with only hours left for politicians to reach a deal on the fiscal cliff. Late Tuesday, lawmakers passed a bill to extend tax cuts and temporarily raise the debt ceiling, and U.S. stock futures and Precious Metals enjoyed a boost from the decision. However, the U.S. economy isn’t quite out of the woods yet. Fawad Razaqzada of GFT Markets said, “The focus will quickly shift toward the end of February when the U.S. is expected to hit its debt ceiling. It’s difficult to be sure of the market’s reaction because a lot of traders are away at the moment and volumes are light, so any moves are likely to be exaggerated slightly.”

The Gold price rose to a two-week high amid the news. Saxo Bank Vice President Ole Hansen said, “The deal does not seem like a long term durable solution to the U.S. debt, but it’s given the Gold market the excuse to move higher, helped by the dollar.” If Gold is mainly trading on the softer dollar at the moment, many eyes will start to focus on the end of February for more direction.

U.S. DOLLAR STRENGTHENS; GOLD BEGINS TO DROP

The Gold price eased off Wednesday's recovered highs due to a stronger dollar. In fact, the dollar hit a three week high against a basket of currencies while the euro dropped to a low it hadn’t seen since mid December. David Jollie, strategic analyst at Mitsui Precious Metals, said, “The deal to avoid a fiscal cliff has booted some problems into the long grass by a considerable distance, but there are still issues out there such as expanding the debt ceiling, which could prove to be difficult negotiations.”

FEDERAL RESERVE MINUTES SUGGEST QUANTITATIVE EASING COULD END

Precious Metals prices began to tumble early Friday morning as they reacted to minutes from the latest Federal Reserve meeting that suggested quantitative easing could be coming to an end soon. Stan Shamu of IG Markets said, “Gold had been one of the biggest beneficiaries of the Fed’s easing program as it looked more attractive as an inflation hedge.” Analysts at Barclays explained that this was unexpected, writing, “The range of views on the likely timing of completion of asset purchases was apparently sooner than market expectation.”

Seemingly on cue after the Fed minutes were released, the ADP jobs report showed a gain of 155,000 jobs in December, continuing a steady trend of improvement. When the Fed announced the indefinite asset purchases last year, one of the conditions of the end of this round of quantitative easing was better jobs numbers, and the past few months have given that. The unemployment rate, however, remained flat at 7.8 percent.

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