Weekly Gold & Silver Market Recap for March 23, 2012

In the past few weeks, Gold has been experiencing a positive correlation to Treasury prices, which means Gold likely will follow the trend of U.S. bond prices. According to the Financial Times, an industry source reported in recent weeks that central banks have been buying Gold, with an estimated four metric tons of the metal being bought. The consumer demand seems to have helped boost Gold sales as well. According to Rohit Savant, an analyst with CPM Group in New York, “A lot of it has to do with bargain hunting.” Rohit said lower prices are enticing investors back to Gold.

With India‘s announcement late last week that taxes for Gold purchases will increase, many of that country’s jewelers have been on strike, which lead to a slump on gold demand this week. The jewelers’ fear that the shift to double customs duty on Gold will increase prices and weaken demand. This week, credit rating agency Moody’s announced that starting in April, India’s credit rating will be credit negative for its sovereign debt, based on its, “…dependence on corporate tax revenue and vulnerability to commodity prices and exchange rates.”  Many investors are awaiting European data to see how the eurozone is faring after the Greek bailout deal. Yuichi Ikemizu, head of commodity trading, said, “A lot of people are on the sidelines at the moment. … We saw some bearish signs, but the market seems to be holding well. The upside at $1,800 is still looking quite heavy, and investors are waiting for a cue.”

In European news this week, congressional testimony released revealed U.S. Treasury Secretary Timothy Geithner’s opinion that Europe is only at the initial stages of a long and difficult path toward fiscal sustainability. Geithner warned heavily indebted countries not to resort to draconian measures to fix their budgets.  Regarding the continuation of the European debt crisis, Arnab Das at Roubini Global said in an interview with CNBC this week, “Our view is that Greece is done, Portugal is coming, and also Ireland. We will see more orderly debt restructuring within the eurozone as long as it’s not part of the ‘too big to fail’ economies like Italy and Spain.” Meanwhile, Purchasing Managers Index (PMI) readings from France and Germany show the eurozone is heading backward into a recession. The PMI rating is based on a 100-point scale, with 50 being the divider between growth and contraction. The PMI for February dropped to 48.7 from 48.78. Speaking of recession, government statisticians in Ireland reported this week that their country slipped into another recession as 2011 came to a close. Ireland is currently attempting to recover following an international financial

This week saw more indication that the U.S. economy is improving.  Jobless claims continued to fall. Although still not at levels economists are looking to achieve, this development is still viewed as a good sign. The four-week moving average, a better measure of labor market conditions, declined 1,250. Employers also are hiring more, adding 227,000 jobs in February. In U.S. housing news this week, new housing construction slowed, but permits for new construction reached the highest point in 3.5 years. The Commerce Department reported that housing starts for February fell 1.1 percent, after it revised January’s numbers slightly upward. Analysts expected a rise in housing starts, but the main increase came in permits for new construction, which typically is seen as a gauge of future demand. New home sales data released on Friday of this week showed that new residential sales for homes for declined for the second month in a row February. Housing data is viewed as a key indicator of a country’s economic condition, and the data released this week indicates that the housing market in this country remains in a precarious state.

The Federal Reserve was in the news this week.  it was revealed that in written testimony to Congress, Federal Reserve Chairman Ben Bernanke stated that the Fed will act if Europe falters again. Bernanke also said that although Europe’s financial troubles have eased, the eurozone is not out of the woods, and he stressed that further strengthening of the European banking system is required to guard against contagion in sovereign debt markets. Also this week, St. Louis Federal Reserve President James Bullard warned that the Fed “over-committing” to easy monetary policy could be detrimental. And with the possibility looming that the Volcker Rule won’t be in place in time for its July 21 deadline, a Fed official attempted to reassure banks this week that the guidance needed to comply with the terms of the rule would be provided anyway. The concern among banks is that if the rule isn’t ready by the July deadline, it could result in market disruptions.

The current optimism over the U.S. stock market could dissipate soon as 2012 heads into an earnings season that some say looks to be the worst since the 2008 financial meltdown. According to projections from Standard & Poor’s/Capital IQ, first-quarter earnings growth is on track to be at a low 0.5 percent. Because this follows last year’s middle-of-the-road fourth quarter, there are no indications of potential big earnings to be had, as there were after the worst of the 2008 crisis. Bill Gross, chief executive of PIMCO, is forecasting another round or two of quantitative easing for 2012, muted economic growth and the end of a 30-year bull run in government bonds. Gross points out that long-term interest rates have been rising in recent weeks as a result of increased concerns about inflation and the ending of Operation Twist in several months. Operation Twist was a Fed plan where short-term debt was sold to buy long-term debt. The question on Gross’ mind is that when the Fed quits propping up long-term debt, who will be left to buy?

With unrest continuing in the Middle East, oil prices were very much in the news this week. Iran’s nuclear program is still a source of concern, and the potential for military strikes and Western sanctions have sent the price of crude soaring. With higher oil prices threatening to stall economic growth globally, OPEC leader Saudi Arabia is increasing production, and the U.S. government is considering tapping oil reserves. Libya also appears to be ramping up its oil production. Peter Voser, the chief executive of Shell, said this week that he believes the trend of higher oil prices will continue and warned that higher commodity prices could hamper the economic outlook. On Friday, oil prices soared based on news that Iranian oil exports dropped in March, and the belief is that the tension between Tehran and the West regarding will keep an added premium on crude oil prices.

China has been a major factor for the global economic recovery, and worries regarding China’s slow economic growth caused most Asian markets to drop in the middle of the week.  Conita Hung of Delta Asian Financial Group believes that such concerns have affected global sentiment in a way that has overshadowed the markets. Less-than-promising Chinese factory data released this week caused many investors to cash out their positions in Gold for profit-taking purposes. Factory data fell from a PMI rating at the end of February of 49.6 to a preliminary 48.1 for the month of March. Based on the latest data, China’s economic outlook is worsening.

Weekly Spot Prices

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