Weekly Gold & Silver Market Report for Apr 12, 2013

GOLD REACTS TO ECONOMIC CONDITIONS

As the week began, the price of Gold was mostly flat after positive gains last week. There is a continued move from commodities into equities, though many economists wonder how long this trend will last. “Equities are stronger, and that’s why we are seeing some profit-taking in Gold, but losses could be contained as there is still a lot of uncertainty, especially in Europe, where some issues are re-emerging in Portugal,” MKS Capital Senior Vice President Bernard Sin said.  This week’s main focus was on the United States Federal Reserve meeting and the future of their easing policies. “Market participants will be keen to get further clarity on where Fed members stand on QE, particularly given rising talks of flexibility and potential tapering of asset purchases,” UBS said in a note. The monthly Federal Open Market Committee meeting minutes were released early Wednesday morning, though the contents were hardly newsworthy. The report showed a growing number of reserve members questioning continued monetary easing. “In particular, participants pointed to possible risks to the stability of the financial system, the functioning of particular financial markets, the smooth withdrawal of monetary accommodation when it eventually becomes appropriate, and the Federal Reserve’s net income,” the March meeting minutes state. However, these minutes were compiled before the release of the latest employment report, which showed a slowdown in new job creation. Since the beginning of the easing program, the Fed has made it clear the program will continue until employment reports show major improvement. Another catalyst of Gold’s price drop came from Cyprus’ intention to sell excess Gold reserves to help finance their economic bailout. It is not a large enough amount of Gold to affect the price on its own; however, it does open the door to speculations of other countries’ potential plans to deal with economic issues. “A bearish interpretation would be, where Cyprus leads, others will follow. If those others were Spain or especially Italy, they have very large reserves. But there are good reasons to think in this, as in other aspects, Cyprus is a special case,” Macquarie Metals Analyst Matthew Turner said. By the end of the week, Gold had lowered to its lowest level since July 2011. Gold’s response to economic data and U.S. and foreign currencies has adjusted over time and MKS Group’s Senior Vice President Frederic Panizzutti has noticed, saying that lately, Gold “does not seem to respond adequately to the current financial and geopolitical situation. The rumors about Cyprus possibly selling some Gold from its Central Bank reserves had a psychological impact resulting in some selling despite the fact that the amount of Gold being mentioned could easily be absorbed by the market.”

MARKET REACTION QUESTIONED

While the financial markets monitor and react to different reports around the world, many economists are questioning if those reactions are justified. U.S. consumer confidence dropped to a nine month low in April as economic stability has become a concern for Americans. Pessimistic data on jobless reports and recent retail sales is preventing economic growth. The Federal Reserve plans to continue with its monetary easing policy to create stronger job and housing markets.  On the topic of monetary easing in the U.S., a prominent Wall Street money manager has joined the list of those criticizing the Fed’s quantitative easing program. Rick Rieder, the managing director of investment firm BlackRock, is calling on the Fed to rein in its bond-buying efforts, describing them as “a large and dull hammer” that is in danger of increasing inflation. This opinion marks a change for Rieder and BlackRock; in the past, the firm had been a proponent of government debt. According to Rieder, “Fed policy has had a distorting effect on capital allocation decisions of all kinds at virtually every level of the economy.” In Europe, the economic issues have been well documented and the news this week did not change the region’s outlook. Credit ratings agency Moody’s cut Spain’s rating as they expressed a pessimistic view on the country’s credibility. Spain’s new credit rating is Baa3, just one level above junk status. “Whilst acknowledging the progress in fiscal consolidation that Spain has achieved at all government levels, the outlook on Spain’s government bond rating remains negative given the continued challenges it faces in meeting the deficit targets,” Moody’s wrote in a note. Surprisingly, the Gold price has yet to react to tensions out of North Korea, instead being swayed more by economic data, monetary policy decisions and currency trades. Wednesday’s news about Cyprus selling a portion of its Gold reserves is also weighing on the Gold price. UBS said in a note, “Given the significantly weaker-than-expected employment print in March, the focus on U.S. economic data is bound to become more acute in the coming weeks and months as the market searches for clues on whether the current momentum of opinion at the Fed continues or stalls.”

At 5:00 pm (EDT), the APMEX precious metals spot prices were:

  • Gold, $1485.70, Down $82.20.
  • Silver, $26.05, Down $1.77.
  • Platinum, $1478.10, Down $48.70.
  • Palladium, $707.40, Down $27.00.

Bailout accepted by Spain

Gold and Silver prices both opened higher Sunday on the announcement this past weekend that Spain agreed to a $125 billion (American dollars) bailout. The devil is always in the details, and although the details of this agreement are still unknown, both equity and Precious Metals markets have reacted favorably. The money will go to struggling Spanish banks. It is hoped that this infusion of capital will revive Spain’s financial system.

Now that a bailout has been accepted by Spain, the focus will shift to the approaching Greek election. The Greeks will decide Sunday whether they will remain in the European Union, thereby holding together the eurozone. On May 6, elections were held with neither party being able to form a government, so a new election was scheduled for June 17. The pro-bailout New Democracy party is slightly in the lead, but it is still unknown whether that party will be able to form a coalition if it wins the election.

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

  • Gold, $1,595.80, up $4.40.
  • Silver, $28.74, up $0.18.
  • Platinum, $1,454.30, up $27.20.
  • Palladium, $623.00, up $11.00.