Gold & Silver News Mar 28th, 2014

Here are the world’s top stories on the outlook for Gold and Silver prices and related economic indicators for this week.

Enjoy,

Damion

Gold Shows its Resilience

The big story in gold this week is how strongly it rallied on Friday, March 21 after a sharp 4-day drop. After starting the week at its highest price in six months, $1392.60, the metal dropped 3.1% over the next four days. This represents the largest drop in three months, and it came in response to several announcements by new Fed Chair Janet Yellen. However, prices rallied at week’s end due to what Phil Streible, a senior commodity broker at R.J. O’Brien & Associates, characterizes in Bloomberg News as some safe haven buying in the aftermath of Russia’s annexation of Crimea.

Global Politics

  • Global tensions centered on Russia’s confrontation with Ukraine were largely responsible for the 6-month high that gold started the week at. Goldman Sachs commented that additional factors boosting gold prices include cold weather across the U.S. and concerns about China’s credit-worthiness. However, Goldman Sachs continues to express caution about gold’s rally this year, even while gold continues to be a top performer across asset classes in 2014. Despite the price of gold having risen in 2014 by 11%, Goldman suggests that unstable factors have caused this rise, and they are still forecasting prices at the end of 2014 to be about $1050, or 22% below the March 22, 2014 price.

Federal Reserve

The Federal Open Market Committee (FOMC), meeting on March 18 and 19 with Janet Yellen at the helm for the first time, announced a reduction of $10 billion in its monthly bond-buying program, tapering the program down to a $55 billion level this month, with the expectation that the Fed will end quantitative easing in fall.

Yellen’s first news conference, held on Wednesday after the meeting, made waves, driving gold and silver prices down to their lowest levels since February 28. Yellen also announced at this conference that the end of the quantitative easing program may be followed six months later with a possible hike in interest rates. The dollar rose sharply following this announcement, while gold dropped sharply to $1,330.50 an ounce on the Comex, its lowest price since February 28.

Bill O’Neill, partner of commodities investment firm LOGIC Advisors, commented in Reuters, “If the Fed is going to raise rates quicker than people had expected, that’s definitely bearish for gold.” He cautions that international tensions are not sufficient to maintain gold prices in the face of domestic pressures in the economy. Market Watch quotes Brien Lundin, Editor of Gold Newsletter, as pointing out: “With the geopolitical crisis easing [in Ukraine] and Yellen delivering an unintended shock to the markets yesterday, the speculators are running away from gold right now.”

Gold & Silver Markets

Silver prices continued their slump, with the spot silver price on March 21 closing at $20.38. This represents a drop of 5.2% this week, and the fifth straight session in which it has declined.

Opinion and commentary

Peter Schiff disagrees with Goldman’s negative stance. On Thursday’s episode of CNBC’s “Futures Now,” he debates Mark Dow, author of the Behavioral Macro blog, about the degree to which the gold market is driven by sentiment. Schiff delivers evidence that the expanding economy is a myth, and that gold prices will continue strong throughout 2014 as a result of a weak U.S. economy. Predicting a collapse in the dollar, Schiff forecasts that gold will continue to be a crucial hedge against inflation.

CNBC’s Alex Rosenberg points out that Schiff’s Europac funds have all lost value in the past 12 months, however, while the S & P has gained 20%. Emerging global events and the response of the U.S. economy in coming months will demonstrate whose crystal ball is currently providing the clearest view.