Weekly Gold & Silver Market Recap – 12/20/2013

Brandi Brundidge

12/20/2013 2:30:00 PM

PRECIOUS METALS TREND UPWARD AHEAD OF FED MEETING

Gold gained during Monday trading as crude oil and the U.S. dollar both tumbled, making investors bullish on the yellow metal. The market anticipated the U.S. Federal Reserve’s decision on whether to taper monetary policy. "Should tapering not be announced at the December meeting, given the elevated speculative positioning to the short side, there is scope for a short-covering rally," Barclays Capital Precious Metals analyst Suki Cooper said. Gold has fallen 25 percent this year on the anticipation that the Fed will cut back fiscal policy. Investors think the drop was overdone and that number could retreat if tapering does not occur.

METALS DOWN AS COST OF LIVING HOLDS STEADY

The Gold price fell on Tuesday following reports that the average cost of living in the U.S. remained unchanged from October to November. “Metals markets need to see some inflation before they can rally because they’ve lost their appeal as an inflation hedge,” Chris Gaffney, senior market strategist at EverBank Wealth Management, said. Gold and Silver prices have benefited in the last few years as the Federal Reserve’s quantitative easing (QE) program raised inflationary fears among analysts and investors. From December 2008 through June 2011, Gold rose 70 percent as the Fed injected $2 trillion into financial markets. Speculation that QE will soon be scaled down has put pressure on Gold during 2013. However, the massive asset purchase program continues and many economists believe it is merely a matter of time before inflation takes hold.

U.S. stocks also fell Tuesday following Monday’s rally as investors awaited the outcome of Wednesday’s Fed policy meeting. “There are so many people watching the Fed’s decision, so much money on the edge, that the market is sort of just jumpy right now,” Sam Wardwell, investment strategist at Pioneer Investments, said. “Everybody knows the Fed is going to taper sooner or later.” Equities indexes have fallen this month as positive economic data has raised the belief that the Fed will be ready to announce an initial stimulus taper following Wednesday’s meeting.

FED DECIDES TO TAPER FISCAL POLICY; METALS REACT

On Wednesday, the Federal Reserve finally announced they would trim their bond buying program by $10 billion a month beginning January 2014. Nuveen Asset Management chief equity strategist Bob Doll called it “good news for equities.” He added, “The Fed is finally signifying to us the economy is doing better. [In] 2014, the economy will be a bit stronger, a bit broader and this is just confirmation of it.” Previously, the Fed made it apparent that tapering would not occur until the unemployment rate fell below 6.5 percent. The rate is currently hovering around 7 percent after November’s jobs report reflected an astonishing 203,000 jobs created.

Gold held steady ahead of the Fed announcement, but once news broke that tapering would begin shortly, the yellow metal slightly dropped. Libertas Wealth Management Group President Adam Koos commented on the Fed’s decision, saying, “more growth in the monetary base just means more inflation later, which should mean more appreciation in metals and other hard assets,” adding that Gold would be an “appetizer — the beginning of the commodity meal on the menu.”

TAPERING NEWS SINKS IN; JOBLESS CLAIMS AT 9-MONTH HIGH

Gold and Silver prices tumbled during overnight trading into Thursday, with the Gold price nearing $1,200 per ounce. After initially turning positive, it appeared the Federal Reserve’s tapering announcement was catching up to investors. The World Gold Council’s William Rhind said Wednesday, “Today’s announcement from the Fed is a welcome reflection of improved economic conditions in the U.S. We believe market participants will refocus on the underlying fundamentals of supply and demand, which remain positive.”

Although U.S. stocks fluctuated Thursday, there was little overall change as the S&P 500 lost only a few points and the Dow switched between small gains and losses. Paul Mangus, Wells Fargo Private Bank’s head of equity strategy and research, said, “There are some cross currents in today's numbers. They point to an economy that is recovering, but at a modest pace. Overall we had kind of a mixed bag.” Thursday’s market performance was in contrast to the prior days performance, when the Fed’s tapering news prompted a rally on Wall Street.

GOLD HITS SIX-MONTH LOW; GDP REVISION BETTER THAN EXPECTED

Gold and Silver were mostly flat Friday, with Gold near a six-month low. Eugen Weinberg, head of commodities at Commerzbank, believes Gold needs a small rally and some stability to establish a bullish trend. He said, “If the Gold price should succeed in forming a stable and long-term bottom at above $1,220 per troy ounce, investor interest is likely to pick up again. After all, the considerable uncertainty over [this round of quantitative easing] is gone, meaning that the spectre of ‘tapering’ has lost its ability to scare the Gold market.”

At 4:15 p.m. (ET), the APMEX Precious Metals spot prices were:

• Gold, $1,203.60, Up $7.50.
• Silver, $19.42, Up $0.18.
• Platinum, $1,336.20, Up $14.80.
• Palladium, $698.30, Up $2.00.

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