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OptionsXpress: Tapering Hurt Gold; Potential Inflation, Mine Costs May Offer Support

Friday December 20, 2013 12:13 PM

Tapering of Federal Reserve quantitative easing hurt gold this week, but potential for inflation and scaled-back mining at lower price levels could help the market down the road, says optionsXpress. Gold hit a six-month low Thursday after the prior day’s taper news. However, the central bank is expected to keep short-term interest rates near zero for the foreseeable future. “This may result in inflation reaching Fed target levels, which could be supportive of gold prices down the road,” optionsXpress says. Many bulls had been hoping that the FOMC would hold off on tapering at least until March. “The news shook many remaining longs out of the market, so they can live to trade another day,” optionsXpress says. Meanwhile, the firm continues, the developments are creating a crisis for South African miners. “The price of the metal has fallen while production costs and miners’ salaries have risen, which threatens to shutter mines,” optionsXpress says. “The supply threat will likely play second fiddle while traders focus on Fed policy and inflation, but it does put a floor under metal prices. The question is how low that floor is.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

BofA Merrill Lynch: Silver Investment Demand ‘Strong But Just Not Strong Enough’

Friday December 20, 2013 12:13 PM

Silver investment demand has been strong “but just not strong enough,” says Bank of America Merrill Lynch. Miners have been increasing output while photography demand declined. “The imbalance did not matter for a long time because investors picked up the spare ounces…,” the bank says. But while coin and exchange-traded-fund investors have continued to increase exposure to silver this year, purchases are down 9.9% year-on-year, the bank continues, meaning that “buying was insufficient to absorb the surplus.” Nevertheless, analysts say many silver investors have been hanging onto positions on expectations of higher industrial demand or increased offtake for new applications in the medium term. Still, a rebound in economic fortunes in developed markets will increase competition for investment dollars from other cyclical assets, BofA Merrill Lynch says. Improved industrial demand should offset some loss of fresh investor buying, the bank continues. Still, BofA Merrill Lynch says, silver could trade down to $17 an ounce in the second half of 2014.

By Allen Sykora of Kitco News; asykora@kitco.com

 

CIBC: Final Q3 GDP Shows Upside Risk For 2014

Friday December 20, 2013 9:05 AM

The U.S. ended the third quarter on a strong note, which bodes well for 2014, says Avery Shenfeld, senior economist at CIBC World Markets. The U.S. Commerce Department released the final print of third-quarter gross domestic product, which was revised up to 4.1% growth from its previous reading of 3.6%. Shenfeld points out that the adjustments were made as a results of consumer spending, which increased to 2.0% from the previous report of 1.4%. “The fresh data will see upward revisions to overall growth forecasts for 2013, and although Q4 will be significantly softer, the second half as a whole adds weight to our view that the U.S. economy is poised for a much stronger 2014,” he says.

By Neils Christensen of Kitco News; nchristensen@kitco.com

 

Universal’s Fuljenz: ‘Gold Will Have Its Day Again’

Friday December 20, 2013 8:38 AM

The outlook for gold remains strong, says Michael Fuljenz, president of Texas-based Universal Coin & Bullion. "Gold was down in 2013, but it's not out in 2014,” he says. “China, the world's No. 1 producer and consumer of gold, continues to import gold in near-record quantity; several of Wall Street's most respected fund managers continue to either hold physical gold or are buying gold-related stocks; and the severe U.S. federal budget problems will be back on the front burner by next summer, going into mid-term elections. Those are just a few of the reasons why I'm still a believer in gold as a long-term financial hedge." He describes a tug-of-war in which exchange-traded-fund investors in New York have unloaded holdings this year while physical demand absorbs much of those sales. “I believe gold will have its day again when only a small fraction of the money currently flooding into stocks returns to gold," Fuljenz says. Fuljenz has been a consultant to the U.S. Mint and Royal Canadian Mint and is also a member of the board of directors for the Industry Council for Tangible Assets.

By Allen Sykora of Kitco News; asykora@kitco.com

 

APMA’s Nichols Anticipates ‘Sustainable Recovery’ For Gold

Friday December 20, 2013 8:38 AM

Gold’s weakness in the wake of this week’s U.S. quantitative-easing tapering announcement by the Federal Reserve is “exaggerated,” says Jeffrey Nichols, managing director of American Precious Metals Advisors and publisher of NicholsOnGold.com. “I strongly believe, even if prices dip further on technical trading, gold will before long begin a sustainable recovery,” he says. The Fed’s tapering decision was intended to communicate an optimistic economic assessment. “When the economy finally gets going -- which it will because it always does -- whether in one year or five, all those cheap dollar bills, trillions of them printed by the Fed, will likely find their expression in a worrisome acceleration of price inflation,” Nichols says. “Fed policymakers may now be genuinely concerned about disinflation or, worse yet, actual deflation, but the bigger risk down the road is a resurgence of worrisome inflation.” He also comments that liquidity from QE has fueled rising equities and, to a lesser extent, real estate prices. “When these overinflated assets look unattractive, as they will sooner or later, hot money will again find safety in gold,” he says. He also cites the Fed’s intention to keep short-term interest rates near zero after the end of QE. “After all, cheap money can be a gold bull’s best friend.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

Little Market Reaction To S&P Downgrade Of European Credit – BBH

Friday December 20, 2013 8:12 AM

Credit-rating agency Standard & Poor’s released revised credit ratings for several countries, including reaffirming the United Kingdom’s AAA rating and lowering the European Union’s triple-A rating to AA+. Brown Brothers Harriman analysts say S&P cited “a deterioration of creditworthiness of many members and the contentious EU budget talks.  There was little market reaction” to S&Ps rating changes.

By Debbie Carlson of Kitco News; asykora@kitco.com

 

Sentiment Toward Gold Remains Sour As Prices Drop – UBS

Friday December 20, 2013 8:10 AM

The current weakness in gold reflects a different sentiment toward the metal than was the case several months back, says Joni Teves, analyst, UBS. “Gold’s current slow grind lower, as opposed to the much more dramatic price moves back in the second quarter, highlight the changes in the gold market over the course of this year. It shows how sentiment towards gold has deteriorated. The sudden and very aggressive drop in prices back in April surprised many market participants at the time, most of whom were still upbeat on gold. In contrast, the current weakness is more or less expected especially given the latest FOMC outcome. And with attitudes towards gold becoming more negative, the market was in a sense more prepared than it was eight months ago,” she says. Teves notes that if gold breaks the current lows around $1,180 an ounce, the next area of chart support is $1,155.

By Debbie Carlson of Kitco News; asykora@kitco.com

 

MKS Capital: 2013 Low To Be ‘Crucial’ Chart Level For Gold

Friday December 20, 2013 7:12 AM

Technical-chart support for gold at the lows from June, in turn the weakest levels since 2010, will be critical, says MKS Capital. The spot market fell as far as $1,186.90 an ounce Thursday; the June low was $1,180.20, according to one price vendor. The Comex February futures bottomed at $1,186; the June low on a futures continuation chart was $1,179.40. The previous lows for the year “will be crucial in the coming days and with very little in tech support beneath there, a breach could see us sharply trading towards $1,090-1,100,” says Alex Thorndike, senior trader for precious metals and foreign exchange. “As we approach year end, however, and the market still very short, we will likely see some position squaring, which could prop the metal up short term.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

HSBC: Gokhran Comments Bode Well For Palladium

Friday December 20, 2013 7:12 AM

Palladium held up better than other precious metals this week on a news report that Gokhran, Russia’s state precious metals and gems repository, may boost purchases of palladium, says HSBC. The bank cites a Reuters report that the head of Gokhran, Andrey Yurin, says the government should have some palladium in its stockpiles. “It is unclear to us whether this would be for fresh purchases of palladium or a pause in Russia’s stockpile sales,” HSBC says. The bank has said that Russia has exported considerably more palladium than it has produced, inferring that Russia’s palladium stockpiles may be nearing exhaustion. “Mr. Yurin’s comments, if substantiated, may have the potential to turn a source of palladium supply into palladium demand, in our view,” HSBC concludes.

By Allen Sykora of Kitco News; asykora@kitco.com

 

HSBC: Gold Fell More Steeply Than FOMC Announcement Merits

Friday December 20, 2013 7:10 AM

Gold’s losses after this week’s Federal Open Market Committee meeting outcome were “severe,” says HSBC. The central bank announced it would start scaling back its bond-buying program, known as quantitative easing, to $75 billion a month from $85 billion. However, forward guidance on the federal funds rate was lowered and the policy statement included a new sentence indicating that the 6.5% unemployment threshold for raising rates is “soft,” says HSBC chief U.S. economist Kevin Logan. He describes the Fed as clearly committed to a highly accommodative stance but with a greater reliance on short-term rates and less reliance on asset purchases.  The new forward guidance from the Fed now indicates a lower-than-expected federal funds rate in 2015 and 2016, and the FOMC signaled a strengthening in its commitment to this hold down as long as inflation is soft, HSBC says. “This has ramifications for gold and implies that bullion fell more steeply than the Fed policy statements merit,” says precious-metals analyst Jim Steel. “The tapering is modest at best and, in that respect, should not have weighed very heavily on gold. More important perhaps for gold is Fed policy signaling that it will keep the front end of the yield curve low. Gold is traditionally sensitive to near-term interest rates and if they remain low, that is gold-supportive.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

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