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August 23, 2012

Gold and Silver Move on Renewed QE3 Expectation

Comex Gold Prices rose to $1665 an ounce, a 16-week high after the minutes from the most recent FOMC – Federal Open Market Committee meeting showed larger number of members demanded additional monetary-policy accommodation. Gold’s 7 day advance is the longest such streak since June. Assets in Gold-backed ETPs reached 2,442.263 metric tons yesterday; data compiled by Bloomberg show, and are now the world’s fourth-largest hoard when compared with national reserves. 
Gold Prices had declined close to the day’s low to $1638 just before the FOMC minutes were announced but swiftly gained to above $1654 after the announcement showed a louder demand for QE3 was made. The minutes indicate that the members of the FOMC have taken a step closer to a third round of quantitative easing, or bond-buying purchases to lower long-term interest rates.
The Fed signaled it was concerned about economic growth & members were positive that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery. The language in the FOMC Minutes though was not explicit in suggesting that more stimulus was on its way soon. 
Markets will now focus on next week’s Jackson Hole Fed symposium to see whether Chairman Ben Bernanke will give any clues about QE3. It was here two years ago that Ben Bernanke signaled the second round of easing which gave rise to a massive asset market rally across the board. It is important to understand that the presidential campaign gaining momentum & heat close to elections, may keep the Fed in Silent mode & the Markets in Vibration Mode. Any weakness in the employment data next month may push the Fed close towards announcing the much awaited QE3.

US QE3 yet far, For now Gold Prices may be let down by Eurozone Gridlock

Gold Trading markets as of now, may have to rely for further momentum on possible announcements of stimulus measures from the PBOC- People’s Bank of China and ECB- European Central Bank. On September 6, at a monthly press conference of European Central Bank President Draghi is expected to unveil some new initiatives to support financially troubled EU countries. Markets are hoping that European leaders will soon take decisive action in the meetings scheduled in the days ahead among various European leaders, to deal with their lingering economic crisis. 
European Politicians could instead come up with Post-Dated Intentions or Watered-down immediate measures, the ones that may prove insufficient to quell the market’s appetite for more resolute steps. Markets then will likely end up being disappointed, in turn pushing the Euro down again & along with it also the Gold Prices. People’s Bank of China Governor Zhou Xiaochuan said adjustments to interest rates and banks’ reserve requirements are still possible after the central bank stepped up temporary cash injections this month. A preliminary report today showed China’s manufacturing may contract at a faster pace in August. Read more in Lack of Central Bank actions may prompt a Potential Sell Off in the article: Gold & Silver Prices near a Technical Range Breakout.

Technical levels for Movements in Gold Prices

Gold Prices seem to have finally broken out of the tight wedge formation & have only today traded above & broken the strong resistance of $1652.50. A weekly close in Gold Prices above $1652.5 may clear the way for an upside Gold Rally towards a Target of $1855. It remains to be seen if this rally sustains above $1652.5 level on a closing basis or has it been a knee-jerk reaction to the FOMC minutes announced yesterday night. There can be a few nasty surprises to the hasty bullishness shown by Gold traders, coming from the European direction as explained above. If that happens, Gold Prices may unfortunately be pushed back into the same range with a soft first landing around 1598.5.

Silver Prices may add Gains further on Strikes & Mine Nationalizations:

In the last few years South Africa lost its title as the largest precious metal miner in the world due to energy shortages, subsequently raising input costs and prompting calls for the nationalization of all mines in the country. Now the country is facing worker strikes at the mines that never end well and reduces supply. Similarly Bolivia begins the process of nationalizing its Silver mines. The last time after a strike occurred in the Potosi region of Bolivia (2010), Silver went from $14 to $49 an ounce. Fundamentally, Shortage of supply in addition to a period of downside consolidation gives Silver a double advantage of a swifter & a larger price rise.
Comex Silver Prices for September delivery have shot up for a third day till now to $30.46 from yesterday’s low of $29.17. October Comex Gold Prices have till now strengthened, to $1665.8 from yesterday’s low of $1634. MCX Silver Trading saw a gap up opening in Silver Prices to Rs. 56,400 from yesterday’s low of Rs. 55,115. MCX Gold Trading too saw a gap up opening in Gold Prices shooting up to Rs. 30,699 from yesterday’s low of Rs. 30,285 at the time of closing & just before the FOMC minutes were announced.

Technical levels for Movements in Silver Prices:

Silver Prices enter a mildly bullish zone after having broken out of the 26.65 – 28.50 range and the next resistance range will be $31.60 – 32.50. A clear short Term Bullish trend for Silver Prices emerges once this higher resistance range is surpassed with large volumes. Silver Prices once above 32 may again enter a tight price range for some time with support at $30 & a very strong resistance at $34.30. A Longer Term Bullishness can be expected once above $34.30 with a focus on a, then easily achievable First target of $44.20 & then to $50.50 also.

Courtesy CommodityTradeMantra.com - Comprehensive market intelligence

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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