Spanish Fallout & Positive Housing Data

Gold has turned negative in midday trading as the fallout over downgraded Spanish ratings added strength to the U.S.A. dollar.  A strengthening dollar drives down the demand for dollar-denominated commodities, including gold.  “Gold has a swift and negative reaction to the U.S. dollar firming up in the middle of the trading session along with weaker oil prices,” said Jeff Wright at Global Hunter Securities. “All of this is in reaction to news of a downgrade by Egan-Jones in the credit rating of Spain; we view Spain as the best line of defense to save the euro zone and have already factored Greece defaulting on their debts and exiting the euro this summer.“

Also adding pressure to gold prices is the rising U.S.A. stock market.  The S&P 500 is up again on housing data.  “We’re definitely seeing signs of stabilization on the housing front,” said Brad Sorensen, at Charles Schwab Corp. “The economy is looking decent. There’s also a bit of relief that we won’t have any imminent kicking out or defaulting of Greece.” There also appears to be a shift from stock repurchase to business investment during April and May. “Investors and corporations themselves are best served when the cash is applied to improving capital investment, as opposed to buying stock back,” said Bruce Bittles of Robert W. Baird & Co.. “That would be much more bullish.”

At 1:00 p.m. (EDT) – the APMEX precious metals spot prices were:

  • Gold – $1,559.10 – Down $11.60.
  • Silver – $27.96 – Down $0.53.
  • Platinum – $1,432.00 –Up $3.50.
  • Palladium – $605.00 –Up $13.10.
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Weekly Gold and Silver Market Recap for May 25, 2012

by John Foster. Email John.

Golden Range?:

Concerns out of the Euro zone continued to pull down the euro and strengthen the American dollar this week, thus pulling down prices. Gold in particular has remained relatively fluid within a certain price range of $1,530 to $1,590. However a key price indicator in the short term continues to be $1,600 an ounce. However, euro pressure continues to be in the driver’s seat for prices. An unidentified international dealer said, “If we break above $1,600 and even go higher to confirm the bull trend, we will see more buying.”  Gold’s price drop has been well documented during the past few weeks. Many factors have led to the shift in price. However, in the view of many investors, this is an opportunity, based on a closer look at the numbers. CNBC contributor Dennis Gartman said, “The public is massively bearish, and that tells me it’s time to be bullish.” He added, “Most people don’t think Gold and stocks can go higher together, but I expect to see them trade dramatically higher over the course of the next several months. The trend is now higher.”  Prices of Precious Metals were boosted by news of purchases from the biggest of spenders. Central banks in Turkey, Ukraine, Mexico, and Kazakhstan increased their Gold holdings in April, according to the International Monetary Fund. Commerzbank AG said, “We regard the central banks as a stabilizing element on the Gold market and anticipate increasing buying of Gold.” Lachlan Shaw of Commonwealth Bank of Australia said that early signs of an American recovery, a slowdown in Chinese growth, question marks over United States monetary policy and a sovereign debt crisis brewing in Europe are all keeping the market in a wait and see mode. “Any of these four catalysts can drive prices and investment demand,” he said.

U.S Slow but Steady?:

The United States might experience slower economic growth than previously expected with the end of extended benefits for the unemployed. This might influence some job seekers to accept jobs they otherwise would prefer not to, or give up searching for a job and drop out of the labor force. Andrew Tilton at Goldman Sachs Group Inc. is optimistic about the end of the extended benefits program. He said, “There has been an improvement in the availability of jobs. In a better labor market, people losing their benefits would be more likely to look and to find a job, and less likely to simply drop out.  However, consumer sentiment in the United States rose to its highest point in more than four years in May. Optimism in the air as a healthier economy is beginning to develop. Richard Curtin, head of the University of Michigan’s consumer survey, reflected on how long the consumer sentiment will remain positive. He said, “The most likely prospect is that job growth resumes at a modest pace and that confidence remains largely unchanged until after the November election and decisions about tax policy are made.” Despite the upheaval in Europe, the United States’ economy continues to push forward. There is concern the debt problems in Europe and China could affect American factory data soon, with the Purchasing Managers Index slowing from 56.0 in April to 53.9 this month. Paul Edelstein said, “We are growing at moderate pace of two to two-and-a-quarter percent, but we have some headwinds that are starting to assert themselves, particularly coming from Europe.” Continue reading

Metals Retreat as Dollar Continues to Climb

Currency markets pushed the American dollar higher amid dim hopes for a European solution. Kevin Hebner, a foreign-exchange strategist for JPMorgan in London, wrote to clients today, “For the second time in six months, Greece’s Economic and Monetary Union exit seems imminent.”  Fears of a breakup of the eurozone have been driving down the value of the European currency for the last few weeks.  A weak euro bolsters the American dollar, and as a consequence, typically pushes down the price of precious metals and other commodities.

A bit of positive news surrounding the American housing market was released today, indicating an increase in sales of existing homes.  “We’re still a ways from looking at an encouraging picture of the U.S. economy, though when it comes to housing, every little bit helps,” said Camilla Sutton, a currency strategist at Scotia Capital in Toronto.  Overall home values have increased 10.1% from April 2011, but are still about 30% lower than the high-water mark set in 2006.  Diana Olick, a real estate reporter for CNBC cites a reduction in bank foreclosures and distressed sales as the primary driver for the higher prices.

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

  • Gold, $1,569.10, Down $21.10.
  • Silver, $28.25, Up $0.17.
  • Platinum, $1,448.80, Down $14.70.
  • Palladium, $613.00, Up $0.30.
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