Weekly Gold & Silver Market Recap – 5/30/2014

Ted Prince

5/30/2014 4:10:00 PM

The Gold price came under substantial pressure this week as the perception of diminished tension in Ukraine temporarily rescinded safe-haven demand for the yellow metal.  News that elections for new leadership in the nation will go uncontested by Russia saw Gold take a significant dip after a return from the long weekend.  Primary Precious Metals prices have continued to trickle down each subsequent session leaving Silver below $19 an ounce and Gold realizing its worst week since March.  While Gold and Silver struggle to find solid footing, Palladium reached its highest price since 2011 as the protracted miner strike in South Africa continues to hamper worldwide production for the metal.  Causing further impetus for the retreat of Gold and Silver this week, the U.S. stock market continues to perform well.  Mostly upbeat domestic economic data, strong corporate earnings, and a greater risk appetite for investors have helped benchmark equities indexes surge to new record levels. 

The Gold market received support over the past month from tensions in Ukraine. The public perception is that these tensions are easing (despite the loss of 64 lives this week) and this has helped drive Gold prices lower. Asia, who often picks up Gold purchases in declining markets, has not done so the past couple weeks. Buying has also slowed in India as investors are awaiting the repeal of the current harsh import taxes on Gold. "The move into riskier assets like equities, which have performed well, is weighing on gold," Peter Fertig, a consultant at Quantitative Commodity Research, said. "Furthermore, the market is not as worried about Ukraine as it has been in March and April. That's reducing support from that side for gold."

U.S. stock futures were mostly flat Friday, but some firms and analysts are predicting turbulent times ahead. Bank of America Merrill Lynch analysts said, “At some point the capitulation into Treasurys will be completed and thereafter bond volatility (and thus equity volatility) will become increasingly vulnerable to events that question the assumption of [zero interest-rate policy] to infinity. We stick with the view that a summer melt-up would likely be followed by a nasty correction in the autumn.”  Some analysts predict a significant stock market correction that could see equities fall as much as 20 percent, which could help Gold realize a significant rally as a safe-haven.

Palladium has reached its highest price since 2011, climbing 13 percent since a South African miner strike that began January 23 has virtually halted production of Palladium.  The nation is the world’s second-largest producer of Platinum and Palladium and the failure of labor unions and South African mining companies to reach a consensus regarding worker’s wages seems to be an ever-present concern in the region.  “People are betting on higher prices because of the South Africa situation,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview on Wednesday. “The fundamentals are very supportive.”  As Palladium prices rise, many speculators view the metal as a bullish bet as fund managers are beginning to increase their positions in the form of exchange-traded funds.

Gold had its sharpest one day decline since December on Tuesday, falling 2 percent, while the S&P 500 climbed to an all-time high. Several factors were in play to generate this decline. There was a technical sell off driven by a breakout from pennant pattern, called so because of its triangular shape, which triggered computer generated sales. The S&P rally was another significant factor, rising on unexpected good economic news in the housing market and durable goods.

With this week’s retreat for Gold and Silver, investors will wait to see if lower prices will create enough of a buying opportunity to force Precious Metals higher as many take advantage of bargain bullion.  The lingering anxiety regarding a stock market correction has many equities experts leery as we head into the summer.  Should stocks retreat in double digit percentages as some analysts predict, Gold and Silver could see a significant rebound from their current pattern. 

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

• Gold, $1,253.00, Down $6.10.
• Silver, $18.87, Down $0.21.
• Platinum, $1,454.50, Down $6.60.
• Palladium, $837.30, Down $2.80.

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