Unsettled Ukraine Situation Spurs Safe-Haven Buying

 

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

Enjoy,

Damion

Unsettled Ukraine Situation Spurs Safe-Haven Buying

April 28 closing price for June gold on Comex: $1300.80, and for May silver: $19.69. Spot prices at close on Friday May 2nd were $1304.80 and $19.83

The past week saw a sharp reversal on Friday, bringing the gold price over $1300 after it had fallen earlier in the week to a 2 1/2 month low of $1268.24. That drop was due to stronger U.S. equity markets, but continuing tensions in eastern Europe depressed the stock market, which closed lower on Friday. A wave of safe-haven buying buoyed precious metal prices as violence broke out and Russia was criticized for violating the four-party peace agreement reached last week in Geneva.

QE (Quantitative Easing)

No new announcements regarding QE were forthcoming this week, but Jared Bernstein, former Obama administration economist, makes some interesting remarks suggesting that the slowdown in the housing recovery may be due to the tapering off of quantitative easing.

Federal Reserve

Market analysts are still digesting Janet Yellen’s remarks from April 16, as she mulled over the fact that the central banks aren’t able to accurately forecast inflation. In those remarks, Yellen restated her intent to keep interest rates near zero if the inflation rate doesn’t pick up during the next few years as projected by the central banks.

Stock & Bond Market

A widespread decline in U.S. equities on Friday fueled this week’s increase in gold prices. U.S. stocks ended the week down, pushed lower by a decline in consumer discretionary stocks. Amazon.com and Ford Motor lost value in the aftermath of their quarterly earnings — a drop which, in Amazon’s case, Bloomberg reports is due to extensive spending.

Gold & Silver Market

While silver had a terrible year in 2013, with a 36 percent drop in value, an exchange-traded fund that tracks silver prices is showing a three-year high on the cost of bullish contracts relative to bearish ones. After the most recent two-month slump, Bloomberg notes that options investors are bargain hunting in precious metals now.

Global Politics

Standard & Poors rating index dropped Russia’s credit rating to one step above junk, adding to mounting problems from the Ukraine crisis. New violence erupted in the area this week, with a helicopter gunship blown up and international observers held at gunpoint by separatists in eastern Ukraine. The ruble has dropped over 10% of its value since Russia annexed Crimea, and Jeffrey Wright, managing director at H.C. Wainwright, points out that this will directly fuel safe-haven buying.

Summary Opinion & Commentary

Richard Gotterer, managing director and senior financial advisor at Wescott Financial Advisory Group, feels that during the past few months, gold has simply “found a comfortable base range to trade within.” He states in Marketwatch that global news events will cause fluctuations within that range, but he isn’t looking for dramatic changes in the weeks to come.

In an email interview last week with Marketwatch, Peter Schiff reiterated his opinion that gold will rise in 2014 and he believes it can reach $5000 per ounce. He bases his prediction on a belief that the Fed will not end its quantitative easing program as they say they will, and that interest rates are not going to normalize. He feels that the fed will, instead, “move their goal posts” in response to a failure of the U.S. economy to recover, and that they will not tighten their money policy. Furthermore, he points out that the situation in the Ukraine has the potential to deteriorate, and also that it’s likely China and India will renew their physical demand for gold. He urges investors to be patient, and states “the fundamental case for gold has … never been stronger.”

Adam Hamilton, Chair of Zeal LLC, echoes this theory, pointing out in his detailed charts that the recent heavy wave of futures selling, which drove gold prices down in recent weeks, has about run its course. He feels that gold speculators’ total positions have most likely reached major lows, and will now revert to the mean. The resulting major gold investment demand will energize the prices and greatly amplify gold’s 2014 rally.

Gary Wagner agrees to the concept of a sustained rally ahead for gold in this interview video on Kitco.