Gold & Silver Digest: 2/25/13
The Gold & Silver Digest contains headlines of stories that members of this group deem relevant and/or interesting to precious metals enthusiasts.
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2/25/13 7:30 PM EST US close metals price quotes from Finviz
NEW YORK, Feb 25 (Reuters) - Gold rose about 1 percent on Monday as a sharp pullback in U.S. equities and uncertainty over the outcome of Italy's parliamentary election led to resurgent safe-haven buying, extending bullion's rally to a third day.
Bullion climbed near $1,600 an ounce after conflicting early forecasts of Italy's vote results raised fears that a divided parliament in the debt-laden country could hamper euro zone stability. The S&P 500 index fell almost 2 percent.
CHICAGO: Hedge funds cut bets on a rally in gold by the most since 2007 and became the most bearish ever on sugar and coffee as concern that the Federal Reserve will slow US stimulus programs drove prices for raw materials to the biggest loss this year.
Money managers and other large speculators reduced their net-long position in gold futures and options by 40% in the week ended February 19 to 42,318, the biggest drop since July 31, 2007, US Commodity Futures Trading Commission data show.
After a selloff that dragged gold futures down by more than 2% last week, Monday’s rebound isn’t much of a surprise, and some analysts say that a report released Friday has a lot to do with it.
Analysts pointed out some interesting developments in the Commitments of Traders report released by the U.S. Commodity Futures Trading Commission.
It’s too early to call time on gold’s bull run, say economists, some of whom are predicting the yellow metal will hit record highs of US$2,000 an ounce later this year.
Gold investors have been running for the exit over the past week on fears that recent price declines signal a long-term slump, but Capital Economics’ Julian Jessop said the real story isn’t as bad as the headlines.
“We continue to expect the price of gold to reach new record highs of $2,000 per ounce later this year as global monetary policy remains supportive, the crisis in Europe flares up again and the rally in equity markets runs out of steam,” Jessop wrote.
Will the U.S. economy make or break commodities?
That was the question posed by UBS in a note to investors on Monday, as gold and other precious and base metals enjoyed a snappy little recovery. April gold GCJ3 +0.53% was up nearly $20 an ounce. Gains were helped in part by a global equities rally that looked to be taking hold Monday. Read more on gold trading.
So, the conclusion from UBS? As analyst Julien Garren explains in a note, the role the U.S. economy plays in influencing commodity prices is a delicate dance, but providing investors can be patient, it’s a winner for gold. Part of the selloff for gold last week was blamed on Fed minutes that triggered worries the central bank would wrap up its big asset-buying program faster than expected. That means holding gold as an alternative to the U.S. dollar, seen as vulnerable to the Fed’s stimulus policies, is less urgent.
Feb. 25 (Bloomberg) -- James Grant, founder & editor of Grant's Interest Rate Observer, predicts that the result of recent Federal Reserve action will prompt a return to the gold standard for the United States. He speaks on Bloomberg Television's "Bloomberg Surveillance."
A new paper for the US Monetary Policy Forum and published by the Fed warns that the institution's capital base could be wiped out "several times" once borrowing costs start to rise in earnest.
A mere whiff of inflation or more likely stagflation would cause a bond market rout, leaving the Fed nursing escalating losses on its $2.9 trillion holdings. This portfolio is rising by $85bn each month under QE3. The longer it goes on, the greater the risk. Exit will become much harder by 2014.
Even though the technical indications for silver are not as strongly bullish as those for gold, they are now sufficiently positive that silver is likely to take off higher before much longer, encouraged by the strength that we should soon see reappear in gold. Of course, it will probably take some weeks for sentiment to recover sufficiently to drive a significant rally after the latest sharp drop, so we may see some backing and filling before a sustainable uptrend can get going, but that is normal.
The price of silver futures contracts have been regularly flirting with a state of backwardation ever since the 2008 Financial Crisis, which is a sign of a growing physical silver shortage.
A state of backwardation occurs when the front month silver futures contract commands a price premium to the subsequent months’ contracts.
On one hand, this situation could actually provide larger traders who own the physical silver with an opportunity to simultaneously sell it and purchase futures contracts to recover their metal holdings for a net profit.
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