Weekly Gold & Silver Market Recap – 8/2/2013

Brandi Brundidge

8/2/2013 4:04:37 PM

GOLD BUILDS MOMENTUM DURING TYPICALLY SLOW SEASON

While summer tends to be a slower time of the year for trading stocks, the week began with promises to be a bit more interesting. The week brought yet another U.S. Federal Reserve meeting for a market hopeful for clarification on tapering the economic stimulus program. The Gold price began overnight trading with a dip, but rebounded nicely Monday morning as it posted gains, building on a three week positive run. The same factors that are giving equity investors a reason to doubt, and therefore are driving markets lower, are supporting Gold prices. As the U.S. dollar suffers, dollar priced commodities like Gold become easier to afford.  Likewise, as the dollar strengthens, the opportunity cost for buying Gold increases, making it more expensive to buy the Precious Metal. Saxo Bank senior manager Ole Hansen said, "This week offers several opportunities to test whether the rally can be sustained with the central banks' meetings and the U.S. non-farm payrolls on Friday."

WHO WILL REPLACE FED CHAIRMAN BEN BERNANKE?

Speculation surrounding the end of U.S. Federal Reserve Chairman Ben Bernanke’s time at the central bank, has now turned to his successor. According to analysts, the markets are expecting it to be Janet Yellen, who has been in favor of the Fed’s recent highly-accommodative monetary. However, new reports have revealed that former Treasury Secretary Larry Summers may be President Barack Obama’s choice, which could cause a shock to the markets. David Forrester of Macquarie Bank said, “If Summers is appointed, then we [may] see markets correct as tapering will be expected to happen more quickly … Yellen is a Fed insider and was part of the Federal Open Market Committee when QE [quantitative easing] was being implemented, while Summers questions the efficacy of QE.”

SILVER DEMAND INCREASING IN ASIA; INDIA HAS GOLD SUPPLY ISSUES

A Silver vault that can hold 200 metric tons opened in Singapore this week. In 2012, the Singapore government decided to support the buying of Precious Metals and removed a seven percent sales tax on investment-grade purchases. Singapore’s goal is to grasp 15 percent of the world’s Gold demand, up from their current average of two percent. Data from the World Gold Council and the Silver Institute shows that about 50 percent of Silver is used in industry, primarily for photography and electronics.

Physical demand for Gold in India, the world’s largest consumer of the metal, increased this week as the country’s central bank instituted new rules in an attempt to reign in its swelling trade deficit. Due to new restrictions, Bachhraj Bamalwa of All India Gems and Jewellery Trade Federation explained, “Premiums are increasing as there is no Gold available.” One trader in Singapore added, “No one in India is able to import for now, due to the new regulations and a lack of clarity on the operational procedures.” Demand is still very high in India and will only grow with supply issues for citizens.

FED ANNOUNCEMENT SUPPORTS METALS

Wednesday afternoon Precious Metal prices rebounded from morning losses after the U.S. Federal Reserve announced interest rates would remain unchanged as long as the economy continues to improve at its current modest pace. “There is nothing in the latest [Federal Open Market Committee] statement released today to suggest that Fed officials have changed their minds about starting to taper the monthly asset purchases in September,” Capital Economics chief U.S. economist Paul Ashworth said. The key difference from the FOMC last meeting is that Fed chairman Ben Bernanke’s economic growth outlook went from moderate to modest. This adjustment may indicate the Fed is concerned about unexpected economic changes in the near future.

Precious Metal prices extended gains on Thursday following the Fed statement Wednesday and the overnight release of China’s purchasing manager’s index. Peter Garnry of Saxo Bank said, “The drivers are both the more dovish tune from the Fed and better-than-expected PMI figures from China overnight. If you take those two events and combine it with a good earnings season with few profit warnings, then you have the right mix for a positive market.”

JOBS DATA DISAPPOINTS; GOLD RECOVERS

On Friday, the Gold price rose more than two percent to recover from early losses after the release of the U.S. Department of Labor’s nonfarm payrolls report. The disappointing number of jobs added to the economy missed targets by nearly 20,000. The unemployment rate fell to 7.4 percent; however, that is partly due to Americans leaving the workforce. Todd M. Schoenberger of LandColt Capital said, “Today’s jobs data is terrifying for Main Street. Despite the proactive actions from the Fed and stimulus help from Capitol Hill, the labor market remains stuck in quicksand. For Wall Street, however, this is terrific news.”

The recovery in the Gold price from overnight selling was due to the impact the jobs report will likely have on the U.S. Federal Reserve’s quantitative easing (QE) decisions. Alfonso Esparza of OANDA said that if the jobs report disappoints, it “would confirm the Fed’s worries in the latest Federal Open Market Committee minutes and in the statements made by its members. Quantitative tapering will likely be pushed to next year if the American recovery appears to be losing momentum.”

GOLD STEADIES AS JOBS REPORT EXPECTED TO INFLUENCE CONTINUED QE

Gold remained steady on Friday after a turbulent morning of trading. An initial dip, caused by bearish investors predicting a reduction of quantitative easing next month, was followed by a quick rebound prompted by weak jobs data. “There is a bit of ambiguity in the numbers because the unemployment figure is at multi-year lows but all-in-all I think Gold may be able to hold above $1,300 [per ounce] in the coming sessions as the data is changing what people were thinking about the tapering story and the timing of it,” Standard Bank analyst Marc Ground said. As Precious Metals markets have been relatively flat this week, investors will begin gearing up for potential monetary policy announcements that could create more volatility in metals and stock markets.

At 5:03 p.m. (ET), the APMEX Precious Metals spot prices were:

• Gold, $1,313.20, Up $0.00.
• Silver, $19.96, Up $0.25.
• Platinum, $1,450.30, Up $5.50.
• Palladium, $732.10, Down $1.30.

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