Daily Market Report 02/29/12

GOLD

What a difference an hour makes in the price of gold.  One minute it was riding high, fringing on hitting $1790 and within about an hour it had fallen around 4% to below the $1720s.  What caused the sharp and very quick decline was Fed Chairman Ben Bernanke testimony to Congress. The tone of Mr. Bernanke’s statement gave the idea that based on all the recent positive economic news that QE3 or an additional economic stimulus was off the table. Not only did we see a selloff in Gold and Silver, but the Stock Markets fell and the U.S. Dollar rallied.   Remember, we are still 12-18 months away from seeing the results from the recent British, European, Japanese, and Chinese stimulus programs.   At 11am PST, Gold is down $65.60, trading at $1,717 per ounce on heavy trading. Over the past ten years of gold trading we’ve rarely seen 4% price corrections, and when we do, it’s an excellent opportunity to buy.

I’m focused on the results of today’s ECB longer-term refinancing operation (LTRO). European Banks have received 530 billion euros ($712 Billion) in three-year loans from the central banks at low interest rates compared with 489 billion euros in the first LTRO in November last year. This type of monetary stimulus is unequivocally bullish for gold and silver prices as extra liquidity tends to debase paper currencies and create future inflation.

SILVER

This will be the year of increased volatility in the precious metal market, especially in the Silver Market.  On Tuesday Silver was up $1.60, at $37.20 per ounce, up $9.34 since Jan 1^st. Today, after Mr. Bernanke’s testimony Silver had almost an extraordinary $4 trading range, from a low of $33.60 to a High of $37.62 per ounce.  The volume of trading at 11am PDT is over 100,000 of the most active May CME 5,000 oz contracts.  Silver is trading at $34.85, down $2.02 on very heavy volume of trading.