Bargain Hunters Jump on Year-End Gold/Silver Correction
Precious metals enter the lightly traded holiday week battered after last week's sell off. Prices firmed a bit on Friday and this morning, after nearly a week of continuous selling.
Last week, bargain hunters bought heavily in the retail market for physical bullion coins, bars, and rounds. In fact, Money Metals Exchange experienced its largest sales week in over a year.
We'll see if prices can hold at these levels this week, or if the big commercial banks and other shorts in the futures markets can continue driving prices in the paper market lower. (Reports out of Asia indicate that the physical market for silver is trading almost $2 higher than the futures markets in the West.) Trading volume over the next week figures to be very light, making the markets easier to push in one direction or the other.
Listen to Friday's Money Metals podcast for a full report on recent precious metals market action.
The COMEX will close early today and will reopen for trading on Wednesday the 26th. Currently gold prices are trading at $1,660.40/oz, up slightly from Friday's close but off $36 compared to this time a week ago. Spot silver trades at $30.20, moving up from last Friday's close as well. Week over week, silver is down $2.10. Platinum trades at $1,547/oz (down -4.1% from $1,613 from the previous week's close), and palladium comes in at $691/oz (down just 0.7% from the week earlier).
Metals Hanging onto Yearly Gains; Physical Buying Heavy during Correction
Barring a second week of heavy concentrated selling in the futures markets, gold and silver prices are set to finish 2012 with gains for the year. This is a fact metals investors who are focused on the short term might easily forget.
Since the highs reached in April 2011, gold and silver prices remain mired in the current ranges; silver between $25 and $35/oz and gold between $1,520 and $1,800/oz. The pattern has been for prices to claw their way toward the top end of the range and then give back the hard won gains in a sudden, seemingly unexplained, flurry of selling. Last week's price action is just the most recent example.
Investors in physical bullion need a thick skin and a whole lot of patience. Here is a short list of considerations that may help you find fortitude:
- Congress and the President are wrangling over the fiscal cliff and markets are reacting as if the negotiations will produce significant results. They won't. The most aggressive plans being debated will trim 1-2 trillion dollars in deficits OVER 10 YEARS – heavily backloaded of course. The nation is running deficits of over $1 trillion PER YEAR right now with no end in sight. And the Federal Reserve is printing the currency needed to facilitate those deficits.
- Last week's weakness in metals prices did not get confirmed by dramatically weaker prices in commodities such as oil or by significant strengthening in the dollar. That may be an indication the current precious metals correction will be short lived.
- We've seen lengthy consolidation periods in this secular bull market for precious metals before. Healthy markets do not move up in a straight line.
The bottom line is that most people reading this week's Market Update already understand the fundamental reasons for owning gold and silver bullion coins, bars, and rounds. Those fundamentals certainly haven't changed over the past week.
All of us here at Money Metals Exchange hope you enjoy your Christmas. We advise not worrying about the ups and downs of the gold and silver markets during this thinly traded holiday week. The New Year will certainly bring some excitement.
Potential Market-Moving News This Week
The COMEX and other financial markets will close early on Christmas Eve and reopen for trading on Wednesday. It figures to be a quiet week in terms of market-moving news. The wild card would be a last-minute deal to avert the “fiscal cliff,” though most now expect those discussions to resume in earnest after Congress returns in January.
- Wednesday, Dec. 26th – Case-Schiller Home Price Index. Consensus is for a healthy increase in average home values.
- Thursday, Dec. 27th – Fed Balance Sheet. The size of the Fed's balance sheet pretty much moves in one direction – up. And the trajectory is getting steeper as America's central bankers continually increase their commitment to money creation.
- Friday Dec. 21st – Chicago Purchasing Managers Index. This index showed significant weakness a month ago. New orders fell a surprising 5 points.