Weekly Gold and Silver Market Recap for Oct 26, 2012

Gold starts the week up and ends lower:

Gold had a strong start, rebounding for the prior weeks’ losses. Gold is trading modestly higher today following a week of hefty losses. “Gold is hanging in a trading range with a slight upward slant with bargain hunters buying ahead of a two-day [Federal Open Market Committee] meeting this week,” said Jeffrey Wright, a managing director at Global Hunter Securities. The recent dip has created a buying opportunity for investors who anticipate a long-term upward trend for the metal. “It is hard to find anyone who does not think that Gold is going higher and will remain strong for some time,” said one Precious Metals analyst. However, as the week went on the economic news sent the pricing lower with a significant dip starting on Tuesday. With any strong movement in prices there is usually an underlying cause, and today that has been the struggles of the European economy. Spain has had their credit rating downgraded and has fallen behind in their debt reduction plans. The news has caused the euro to lose value and in turn has added value to the U.S. dollar. However, there are indications this may be a temporary dip in Gold’s market value. “It’s a confluence of markets. With equities off so much, typically when we see a big drop in equities there’s sort of a knee-jerk reaction that brings Gold down for a while before Gold picks up in response to the weaker equities,” said Jeffrey Nichols, senior economic adviser at Rosland Capital. “So it may be playing through that game once again.” By Friday the markets rebounded after early morning losses thanks to the U.S. GDP report, however prices are still set for a weekly loss. Jeffrey Sica of SICA Wealth, said, “I don’t believe Gold is able to rally off of that data for now. Gold is a momentum asset and its momentum is not there right now.” Sica was also asked about reports that Federal Reserve Chairman Ben Bernanke would not take a third term at the Fed, regardless of the outcome of next month’s presidential election. Sica said, “Without Bernanke, monetary stimulus from the Federal Reserve could be greatly reduced, and that will weigh on the price of Gold.” This is all speculation at this point, as many other Fed officials support the stimulus measures currently in place.

China brings intrigue to the economy:

Chinese factories are feeling the effects of the worst wholesale-cost deflation since 2009. Chinese manufacturers are seeing a reduction in pricing power, and the U.S. has reported a record stretch of import price stability. “Reduced inflation pressure should expand the space for policy makers to take pro-growth actions in their countries,” said Shen Jianguang, at Mizuho in Hong Kong. Shen, who formerly worked at the International Monetary Fund and European Central Bank, went on to say that Chinese officials are likely to reduce banks’ reserve requirements before a Communist Party congress takes power next month. Chinese industrial profits dropped more than 6 percent in August, the largest decline this year. While economics are causing worry to the Asian nation it is not stopping their investment in gold assets. They have purchased 512 tons of Gold in the first eight months of this year alone. Because of China’s large foreign exchange reserve, it has many speculating that they are just getting started. One popular theory is that the Gold market has been rigged by many financial institutions to keep the metal prices down. By keeping the prices of metals down, it would ensure the major world currencies values would not diminish. Former Assistant Secretary of the Treasury Paul Craig Roberts was quoted in October 2010, “I suspect that the Federal Reserve is manipulating the Gold and Silver markets in order to prevent its low interest rate policy from undermining the value of the US dollar. It is easy to offset rising prices of bullion due to physical demand by selling shorts in the paper market.” This, of course, is merely a theory.

The global economic headlines continue to dominate:

In Europe there have been many reports of economic turmoil however many leaders remain optimistic. Greek Prime Minister Antonis Samaras has incurred success with rebuilding his country’s economy. The citizens believe Greece will not face bankruptcy or a eurozone exit. Citizens’ trust has been regained, and they are bringing money back to the economy to reinvest into such assets as real estate. The mood was altered when German Chancellor Angela Merkel ruled out letting the country default on its financial debt. “You might see more inflows (in future) because the rhetoric changed from the German side,” said Georgios Tsapouris, an investment strategist at British private bank Coutts. “At some point you have to move before the market so there is going to have to be some opportunity,” he said. While one country has hope, the region’s economic reports show less than favorable news. The European debt crisis has unfortunately worsened over the past three years, which has led to it spreading like a wildfire throughout the eurozone. The Purchasing Managers’ Index (PMI) for the eurozone was released today. The report is viewed as a reliable indicator of how about 5,000 businesses polled in the eurozone have grown. The PMI for October has dropped to 45.8 from September’s reported 46.1. This is the lowest reading since June 2009. The reading shows how eurozone businesses have been forced to cut jobs to reduce costs with the unforeseen future approaching. “It’s very disappointing, it’s a depressing scenario as things are getting worse,” said Chris Williamson, chief economist at data collator Markit.