Weekly Gold & Silver Market Recap – 5/23/2014

Ted Prince

5/23/2014 4:17:00 PM

The Gold price remains range-bound as Gold’s 30-day volatility has dropped to its lowest in over one year.  As investors ease into the traditionally low trading volume of summer and a mixed batch of economic data failed to drastically influence bullion prices, Gold is still looking for impetus to break out of its current range.  While both Gold and Silver struggle to realize a solid trajectory, U.S. stocks continue their upward momentum.  The S&P 500 reached an all-time high to end the week as the benchmark index peaked above 1,900 for the first time.  The release of U.S. housing data on Friday lent confidence to traders and investors that the domestic economy is continuing to improve.  Though weaker-than-expected unemployment figures helped mildly boost Gold on Thursday, the overall feeling among U.S. economists is that the economy is improving. 

According to U.S. Global Investors CEO and CIO Frank Holmes, Gold needs to see a rising GDP and a negative real return. Currently, there is a negative real return, but interest rates are so low that the negative return has not driven investors out of treasuries. However, as the GDP rises, inflation will rise and so will the negative returns. In this scenario, there will be more movement from the U.S. dollar to Gold.  Holmes also discussed the two big drivers of Gold demand: the Love Trade and the Fear Trade. The Love Trade is cultural and seen widely in the east, especially India and China. The Fear Trade is a portfolio diversification strategy.

Gold traded higher on Thursday following a disappointing jobs report.  “Data shows that the job market is struggling and rate hikes may be far away,” Chris Gaffney, the senior market strategist at EverBank Wealth Management, said. “‘There is some safe-haven buying.’’  Perhaps more notable is the recent gains realized by Platinum and Palladium.  Holdings in exchange-traded funds for Platinum and Palladium reached record levels Wednesday as Western sanctions on leading producer Russia and ongoing mining strikes in South Africa have crippled the supply lines for both secondary Precious Metals.  Investors should note that global conditions for the extraction of Palladium have boosted the metal’s price by 16 percent year-to-date.  Palladium is trading near its highest level in 33 months.

On Wednesday, the Federal Reserve released the minutes from its most recent policy summit.  The text indicated little concern on the part of the Fed for increased inflation stemming from the current pace of monetary stimulus.  With unemployment figures continuing to impress, it is likely that another monthly reduction in quantitative easing (QE) will be announced at the next monthly Fed policy meeting.  U.S. central bank debt buying and the later announcement of QE measures lifted Gold 70 percent from December 2008 through June 2011.  The initial monthly tapering of stimulus began in January 2014.  The original fear of this process along with perceived improvements in the domestic economy and a strong stock rally saw Gold drop over 20 percent last year.  Although the ongoing injections of “new money” are being reduced each month, Gold is still up over six percent year-to-date.

On Monday, news came out of India that could very well boost the Gold price.  India and China buy over 50 percent of the world’s Gold and news broke Tuesday that India’s new government is planning to ease Gold import restrictions. In short, this will make it easier for Indian consumers to buy Gold, as they are also the number one buyers of Gold. Reuters quotes Kumar Jain of the Mumbai Jewelers Association in saying “[Prime-minister elect Narendra Modi has committed]” to the Jewelers Association that change is coming.  “We expect some good news to come in July," said Jain, "either by lowering of [10%] import duty or easing of 80/20 rule." It is important to note that India has no domestic mining operations and is therefore dependent on importing Gold.

With thinning trading volumes hampering markets, Gold investors continue to weigh the strength of equities, the U.S. dollar and ongoing geopolitical tensions.  Though economic data continues to be generally positive, the yellow metal remains resilient as it hovers around $1,300 an ounce.

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

•Gold, $1,294.30, Down $2.90.

•Silver, $19.53, Down $0.04.

•Platinum, $1,477.00, Up $17.10.

•Palladium, $831.00, Up $6.50.

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