Weekly Gold & Silver Market Recap for March 22nd, 2013

GOLD PRICES REACT TO CYPRUS BAILOUT

The tiny European island nation of Cyprus dominated many of the financial headlines this week, and as of today there has been no resolution to the country’s financial crisis. Cyprus is in the midst of a financial collapse and is in dire need of aid from larger international banks. The European Union has stepped up and is willing to assist in financing a bailout plan. However, the EU is requiring that Cyprus pay back part of the loan with a tax on bank deposits. Ilya Spivak, currency strategist at DailyFX said the Cyprus bailout plan “has pushed the euro sharply lower at the start of the trading week amid rising fears of mass capital flight.” He continues on to say that investors across the zone could scramble to move their capital out of the region. The easing proposal was met with much resistance by the government of Cyprus. “At this point in time, we are saying [to international lenders] that if you think that by doing this you are fixing things, by actually destroying our economy and one of the biggest and strongest financial sectors we had on this island, then we have to say ‘no’,” said Efi Xanthou, international relations secretary of the Cyprus Green Party. As of today Cypriot lawmakers are voting today on bills that would strike a deal with European partners after talks with Russia fell apart. The controversial tax on bank deposits is the key issue that parliament will debate. Banks in Cyprus reopen on Tuesday, and there is a real concern that capital will begin to flow out of the beleaguered country. The European Union issued the Cypriot parliament an ultimatum saying they need to raise 5.8 billion euros by Monday to receive their bailout package. Without the deal, Cypriot banks will be cut off from the liquidity of the European Central Bank. Bill Blain, senior fixed income broker at Mint Partners, said “Cyprus could be let go if they don’t come up with a robust enough package. If they come up with something half-baked, that will be rejected and they will be let go. If they come up with something that clearly cuts higher deposits and puts money back into the banks and go about bank restructuring, that may work.” The Gold price has been rising as the trouble in Cyprus unfolds. Safe haven buying prompted investors to push the Precious Metal to as high as $1,616.36 an ounce in overnight trading. When priced against the euro, Gold is up 2.6 percent so far this week.

UNITED STATES FEDERAL RESERVE NOTES

On Tuesday the latest policy meeting of the Federal Open Market Committee began. HSBC said in a note, “(We) expect the FOMC to reaffirm its commitment to the current quantitative easing policy and to offer no hint that it will alter the policy in the near term … Uncertainties surrounding the potential withdraw of QE contributed to Gold’s sell-off earlier this year. Given this, clarity on the FOMC’s QE exit strategy may help ease such concerns and lend support to Gold.” Federal Reserve Chairman Ben Bernanke promised to uphold the Fed’s $85 billion in monthly bond purchases on Wednesday. Few are surprised by the Fed’s announcement as the current unemployment rate of 7.7 percent is still far from the 6.5 percent target. Bernanke has committed to maintain the current stimulus program until the U.S. jobless rate has reached the desired target. Some Federal Reserve officials have been open critics of the need for a continuation of such aggressive monetary policy, but the majority of members still see the current easing measures as necessary to impel U.S. economic recovery. Bernanke noted that a scale down of the quantitative easing (QE) program is far from imminent as officials predict desired levels of unemployment will not be reached until at least 2015. On Thursday morning the United States jobless claims report was released. While the claims did move up, the move was not as much as anticipated. Analysts had expected a rise of about 10,000 claims; in reality it was closer to 2,000 claims. This report lends cause for the U.S. Federal Reserve to keep pushing forward with its monetary easing plans. “Gold is positively reacting to the Fed saying that quantitative easing will not end any time soon and there is also uncertainty of what is going on in Cyprus,” Saxo Bank senior manager Ole Hansen said. Gold has reacted positively when easing is in play and today is no different.

At 4:00 p.m. (EDT), the APMEX Precious Metals spot prices were:

Gold, $1,610.10, Down $6.20.
Silver, $28.79, Down $0.50.
Platinum, $1,585.70, Up $3.60.
Palladium, $759.50, Up $3.60.

Stocks report mild gains in anticipation of QE3

 

U.S. stocks are reporting modest gains today as investors are guarded in anticipation of potential quantitative easing (QE3). Thursday will conclude a two day session of the Federal Open Market Committee (FOMC) after which many analysts foresee Federal Reserve Chairman Ben Bernanke potentially announcing further government stimulus. Economists are expecting the announcement following 43 consecutive months of unemployment above 8% and an economy that grew less than 2% in the second quarter of 2012. A poll of economists who put the chances of QE3 above 50% resulted in 39 out of 51 predicting action on the part of the Fed during this week. “Monetary stimulus will ‘shore up’ a fundamentally weak economy, as opposed to helping the U.S. economy attain a significantly faster underlying rate of growth,” said John Lonski, economist at Moody’s Investors Service.

Gold futures are also realizing humble gains as a German court ruling has allowed Berlin to ratify a final euro zone rescue fund along with news from the FOMC. “With the market’s main focus on this week’s [Fed] meeting…prices were buoyed by a stronger euro,” said strategists at HSBC. The next 24 hours could prove to be eventful for precious metals markets.

At 1 p.m. (EDT), the APMEX Precious Metals spot prices were:

  • Gold, $1,732.30, Down $1.60.
  • Silver, $33.12, Down $0.46.
  • Platinum, $1,649.20, Up $41.20.
  • Palladium, $679.10, Up $4.30.

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Jobless claims disappoint, leaving door open for QE3

 

English: James Bullard, president of the Feder...

English: James Bullard, president of the Federal Reserve Bank of St. Louis (Photo credit: Wikipedia)

 

Precious Metals prices added to early gains after the release of the weekly jobless claims report. After an upward revision from last week’s numbers, the report showed increases across the board in new claims, existing claims, and the four week moving average. Jumps in the prices of Gold and Silver are most likely due to the fact that yesterday’s Federal Open Market Committee (FOMC) meeting minutes revealed that a third round of quantitative easing (QE3) was likely unless there was significant improvement in economic reports, and this report certainly does not indicate improvement.

 

In stark contrast to the minutes of the FOMC meeting released yesterday, St. Louis Federal Reserve President James Bullard said, “If we were to resume, and I think we will, 2 percent growth, maybe a bit stronger than that in the second half of the year, unemployment ticks down through the rest of the year, that’s not a great outcome but that’s a good enough outcome to keep us on hold,” regarding QE3. Bullard also said the market may be setting itself up for disappointment. He said, “Probably the best thing to talk about here is what would that action really be? I think the markets have the idea of some gigantic action. I’m not sure if the data really warrants that.”

 

The euro continues to rise against the dollar, which is supporting the Gold price’s recent moves. Chen Min of Jinrui Futures in China said, “The Fed’s tone is totally different in the minutes from previous comments, and that helped Gold break from the previous range and move into a higher price range ahead of the peak consumption season.”

 

At 9 a.m. (EDT), the APMEX Precious Metals spot prices were:

 

  • Gold, $1,664.20, Up $24.90.
  • Silver, $30.50, Up $0.83.
  • Platinum, $1,543.80, Up $16.30.
  • Palladium, $637.90, Up $7.70.

 

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Investors waiting for QE3

 

The stock market is down today as American investors paused following six straight weeks of gains on the Dow Jones Industrial Average. Also, European officials exposed a supposed plan to cap European bond yields, which hindered investor confidence even as the European Central Bank insists that no decision on the matter has been made.

The dollar is trading down against the euro today. Economists and investors alike are awaiting any possible hints that the United States will embark on a third round of quantitative easing (QE3) from the minutes of the latest meeting of the Federal Open Market Committee (FOMC), set to be released Wednesday. Modestly positive data from the recent FOMC meeting point to delaying QE3. Bill Stone, chief investment strategist at PNC Asset Management Group, said, “Even though the minutes are going to reflect they are leaving the door open, the odds have fallen since then because we’ve seen improvement in some of the data.” However, Bruce Bittles, chief investment strategist at Baird, believes newfound investor confidence is potentially risky. He said, “Investor sentiment has turned more optimistic in recent weeks. This could be problematic, given that sentiment is approaching extreme optimism at a time when the seasonal headwinds begin to surface.” Investors will wait to see if these seasonal headwinds will effect Precious Metals as the traditionally slow summer months come to an end.

At 1 p.m. (EDT), the APMEX Precious Metals spot prices were:

  • Gold, $1,621.60, Up $3.70.
  • Silver, $28.68, Up $0.57.
  • Platinum, $1,498.70, Up $24.60.
  • Palladium, $608.60, Up $2.00.

 

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