Weekly Gold & Silver Market Report for May 3, 2013

Nicholas Wilsey

5/3/2013 4:50:00 PM

GOLD HOLDS STEADY AS EASING CONTINUES

This week’s news was dominated by the central banks’ news of more monetary easing. Past rounds of easing have given support direction to the physical metals market, so investors were paying close attention. There was speculation at the beginning of the week. The eurozone is in recession, and momentum was building for the ECB to cut interest rates this week. If the bank cut rates, it would be the first time since July 2012. If they didn’t cut rates, a cut in June was almost a certainty. Stephen King, global chief economist for HSBC in London, said, “I would argue that the ECB should be thinking of easing policy; whether they are currently is more debatable.” The main factor King sees is what is affecting Germany. Germany is being affected by weakness in Southern Europe and slowing growth in China as well as the depreciation of the Japanese Yen. Investors were waiting to hear the result of a two-day Federal Open Market Committee policy meeting this week in the United States. Expectations for the meeting were for the Fed to continue with the third round of quantitative easing as unemployment and inflation rates are still missing the Fed’s targets. With this market speculation early in the week, Gold stayed mostly flat. It was not a big surprise on Wednesday when the Federal Reserve expressed no intention of altering its ultra loose monetary policy. Though the Fed announced that the U.S. economy is experiencing modest expansion, they did state “the Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.” In the short-term, it seems the Fed’s massive bond-purchase program is not exacerbating the long touted inflationary debacle that was such a bullish marketing factor for Gold in recent years. However, long-term Precious Metals investors feeling anxiety surrounding Gold’s recent price correction were comforted as current projections for future inflation remain unchanged. Traditionally, sustained dollar devaluation and inflation have positively impacted Precious Metals prices. Thursday the central bank in Europe followed suit with an easing plan of its own. The European Central Bank (ECB) cut its main interest rate down to 0.5 percent. This highly anticipated move has had little effect on the European stock market and the value of the euro; however, the Gold market moved upward on the news. “The ECB's decision to cut interest rates to 0.5 percent had looked ever more inevitable as latest data and survey evidence pointed to ongoing and widespread economic weakness across the eurozone as well as below target and receding inflation,” Howard Archer of IHS Global Insight said after the decision. After two of the major central banks announced their decision, Gold did not seem to take note and stayed flat. As the easing continues, only time will tell what affect if any it will continue to have on the Precious Metals market.

LOOKING FORWARD

Now that the central banks have laid out their plans for the near future, many investors are looking for a direction to follow. Gold has held on strong most recently as prices have been volatile, and committed investors have been right by its side continuing to purchase the safe haven asset. "Depressed price levels were perceived as an attractive entry point by physical buyers and bargain hunters," ETF Securities said. "The longer-term fundamental outlook for Gold has not changed and appears robust in our view, despite the sharp falls seen in recent weeks." Investors are seeking to purchase physical metals versus exchange-traded funds, which assisted Gold by pushing it up last week by three percent. As for how long the Fed will continue their easing program, one poll seems to believe it will be here for a while. CNBC conducted a survey in April and 40 of the 46 Fed Survey respondents said they believe asset purchases by the U.S. central bank will continue into next year. Participants also said that as the economy remains week with the sequester taking effect, they doubt cutting the deficit right now is the best idea. John Kattar of Ardent Asset Advisors said, "The economy is struggling. The data have been weak, and continued growth in free reserves is indicative of risk aversion and lack of credit demand. I now believe an extension of QE into 2014 is somewhat more likely than any tapering before year end." Survey respondents include economists, strategists and fund managers. Jim Rickards of Tangent Capital shared his thoughts on Gold with CNBC Thursday as he explained how the yellow metal would continue to perform sideways for the remainder of 2013; however, the metal’s more recent devaluation could increase the prices. “The problem is when central banks fear deflation more than anything, they try everything to defeat it, so, you know, currency wars, money printing, zero-interest-rate policy, forward guidance, twist. They do everything they can. When they can't win the battle against deflation, they devalue the currency against Gold because Gold's the only thing that can't fight back,” Rickards said.

At 5:15 p.m. (EDT), the APMEX Precious Metals spot prices were:

• Gold, $1,473.00, Up $2.90.
• Silver, $24.18, Up $0.26.
• Platinum, $1,501.50, Down $0.20.
• Palladium, $695.10, Down $0.20.

For more APMEX reviews of daily and weekly Precious Metals market activities, visit our News and Commentaries page.

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