Weekly Gold & Silver Market Recap – 9/5/2014


9/5/2014 3:15:33 PM By: Brandi Brundidge

GOLD TO 2 ½ MONTH LOW AS DOLLAR STRENGTHENS

The short holiday week began with the U.S. dollar jumping to a one-year high Tuesday morning, forcing Gold down to its lowest level in 2 ½ months. Strength in the dollar and ongoing confidence among U.S. equities offset concerns about escalating tensions between Ukraine and Russia. “It’s when the dollar hits big numbers that Gold gets punished and this is clearly one of those moments,” Ross Norman, CEO of bullion broker Sharps Pixley, said. Domestic and overseas investors were closely eyeing the movement of global currencies for the week as the European Central Bank (ECB) had investors awaiting their policy meeting. Many expected ECB President Mario Draghi to ramp up the region’s current level of market liquidity with asset purchases known as quantitative easing (QE). The announcement of such measures would likely weaken the euro further, and bring the Gold price down with it, as the dollar would be strengthened by the potential inflationary result of such a program.

GOLD GAINS AS MANY FACTORS COLLIDE

The Gold price moved slightly higher after Wednesday’s morning trading as the yellow metal continued to be pulled in all directions by outside factors. One of those factors, the ongoing situation between Ukraine and Russia, also affected the Palladium price. Russia is the world’s largest producer of the metal commonly used in the automobile industry, and as more sanctions are put on Russia, exports of Palladium would likely decrease. Thus, the seemingly easing tensions in that region have caused the price of the metal to fall.

U.S. DOLLAR FALLS MID-WEEK

The U.S. dollar began to decline Wednesday after three days of consecutive gains. Talks of a potential ceasefire between Ukraine and Russia have helped ease tensions in the region. Masafumi Takada, a New York-based director at BNP Paribas SA, said, “Headlines about a Russia-Ukraine ceasefire are definitely positive for the euro. Also, the market has been accumulating long U.S.-dollar positions lately, and there’s some position-adjustment liquidation ahead of the [European Central Bank] tomorrow and nonfarm payrolls on Friday.”

ECB POLICY WEIGHS ON METALS AS GOLD SUPPLY COULD SEE SHORTAGE

Strength in the U.S. dollar has once again marginalized the demand for bullion Thursday as the greenback climbed to its highest level since July 2013.  The yellow metal was in positive territory until news from Europe revealed plans by the European Central Bank to cut interest rates and begin an asset purchase program in an effort to stimulate the region’s lagging economy.   However, some experts are downplaying the significance of this endeavor as it relates to Precious Metals prices.  “Yes, today people are excited, but how many positive jolts can the world take from another central bank lowering interest rates before people get immune to that,” Jorge Beristain, an analyst at Deutsche Bank AG, said.

LONG TERM GOLD INVESTORS COULD CAUSE SUPPLY CONCERNS

Precious Metals continue to tread water inside a relatively slim trading range since last year’s massive pullback.  Though improvement in the domestic economy and stocks have lured investors away from safe-haven investments like Gold and Silver, some experts believe an impending shortage in Gold supply could force the yellow metal higher in the near future.  With lower prices, new exploration of the metal has slowed and a general tightening of the sector has resulted in a lack of new Gold deposits.  With less money being spent to fund fewer projects, Gold is still being extracted at 1.5 times the expected depletion rate.  Supply concerns should be noted as most Precious Metals investors possess a long-term investment strategy for their Gold holdings.

DISAPPOINTING JOBS REPORT BOOSTS GOLD

A disappointingly low number of jobs were created in August, allowing the Gold price to recover Friday from some losses incurred earlier in the week. The U.S. Labor Department reported an increase of just 142,000 jobs. Many economists had expected a level near 228,000 or more. U.S. stock futures dipped on the news, pointing toward a lower open for Wall Street.

HOW COULD ECB PLANS AFFECT GOLD?

Some investors were surprised Thursday’s announcement of monetary policy easing in Europe didn’t have more of a positive effect on Gold. UBS said in a note Friday morning, “It would have to take more aggressive action from the ECB, which is likely to come alongside a sharp deterioration in eurozone growth, for Gold to benefit significantly. In this scenario, concerns on weaker growth could potentially reactivate physical demand in Europe, should the fear-trade gain traction.”