Weekly Gold & Silver Market Report – 8/15/2014


GOLD REMAINS FLAT AS INVESTOR SENTIMENT INCREASES FOR JULY

Precious Metals traded near even Monday as lack of news in the headlines kept price movement to a minimum.  Investors continue to eye geopolitical crises in the Middle East and Ukraine as bearish forecasts from major financial institutions in early 2014 continue to prove inaccurate.  Gold has risen 9 percent this year as tension overseas continues to boost the safe-haven appeal of the yellow metal.  Many analysts and economists are still expecting a range-bound price pattern for Gold and Silver in the short-term.  With strong economic factors suppressing a price breakout for Gold and Silver, investors await new factors that could influence significant price movement in the coming weeks and months.

GOLD ON THE MOVE

After a period of varying risk in the markets, Tuesday saw Gold on the upswing as Ukraine denied access to a convoy of 280 Russian trucks, claiming to carry humanitarian aid, across its border. Ukrainian officials would prefer Russia follow international rules, which would require the convoy be led by the Red Cross. However, Ukraine is not the only geopolitical hotspot. “There’s multiple hotspots in the world that could easily spiral out of control to something much greater,” Long Leaf Trading Group chief market strategist Tim Evans said in a telephone interview. “You’ll find that investors will normally flock to safe-haven markets, like Gold, in case something really does develop much greater than what we’re seeing currently.”

OLD THEORY STILL LINGERING

The theory of secular stagnation, or a long period of slow growth, is a term that Federal Reserve watchers should expect to hear more in the coming months. First developed by Alvin Hansen during the Great Depression, there is concern that secular stagnation could cause enough diminishing investment opportunities to stunt economic growth and prevent full employment. Minneapolis Fed President Narayana Kocherlakota plans to hold a symposium on the subject this November. “I think there’s a lot of concern about how long this will last, and I think that’s certainly high on the agenda right now. At least people are entertaining that possibility now that it could drag on for longer,” said Brown University associate professor of economics Gauti Eggertsson, who, along with fellow Brown economist Neil Mehrotra, authored “A Model of Secular Stagnation,” which provides an in-depth explanation of how a long period of low growth could come about.

GOLD FUTURES BOUNCE FOLLOWING WEAK RETAIL SALES NUMBERS

Gold futures received a mild boost Wednesday following disappointing U.S. retail sales data.  The weaker-than-expected retail figures reinforced the belief that the Federal Reserve will maintain low interest rates for the foreseeable future. Naeem Aslam, chief market analyst at Ava Trade, said of the sales figures, “It was an appalling number which has missed the forecast by a large number and this has faded the notion of hike in the interest rate by the Fed, at least today.”  A low interest rate environment bodes well for Precious Metals, which are also receiving support from ongoing crises in the Middle East and Ukraine.

GOLD FLAT BUT OUTPERFORMING OTHER MAJOR ASSETS IN 2014

The Gold price remained relatively unchanged Thursday, even as a rise in unemployment claims pared speculation that the Federal Reserve will lift interest rates in the near future.  “Concerns about the labor market are back,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates, said.  “Also, safe-haven bids continue to come in because of the geopolitical developments.”  Much of this year’s gains for Gold have come due to the escalation of geopolitical tension in Ukraine and the Middle East.

GOLD, SILVER, STOCKS ON A ROLLER COASTER RIDE

Gold began Friday down almost $20, well below $1,300 per ounce, while Silver looked like it might head below $19 per ounce. All the while, U.S. stocks were up nicely. By midafternoon, stocks were down triple digits and Gold and Silver rebounded sharply on news that Ukrainian artillery destroyed a significant portion of a 270 truck Russian convoy. This announcement rattled markets and sent European stocks tumbling. “Appropriate actions were undertaken and a part of it no longer exists,” Ukrainian military spokesman Andriy Lysenko told journalists. Russia has claimed that these trucks were bringing in humanitarian aid, but Ukraine officials never bought into this explanation. Last night’s attack demonstrated their resolve and only adds more uncertainty to this situation.

CONFIDENT U.S ECONOMIC GROWTH OUTLOOK

Economists have raised their growth targets for the third quarter, but trimmed their estimates for the balance of the year. The overall outlook for job growth and lower unemployment remains strong. In the Philadelphia Federal Reserve’s quarterly survey of 43 economists, the third quarter growth forecast went up from 2.9 percent to 3 percent, while the fourth quarter forecast went down from 3.2 percent to 3.1 percent. Overall for 2014, they lowered economic growth from 2.4 percent to 2.1 percent. Inflation is expected to remain muted with only slight increases in the forecasts.