Weekly Market Report 12/17/12

This week I discuss Federal Reserve Chairman Bernanke’s Wednesday announcement and the Fed’s continued monetization of U.S. debt. The Fed’s holdings will be over $4 Trillion by the end of 2013, which is very bullish for precious metals in 2013 and beyond. 

GOLD

For the third week in a row Gold ended lower, closing at $1,697 per ounce last Friday. Gold continues to build a base in the $1,686 to $1,755 per ounce trading range. Gold reached a high last week of $1,725 per ounce on Wednesday after the Federal Reserve’s expected announcement. Many professional commodity traders purchased Gold before the Federal Reserve’s statement with the hopes of profiting when they sold into the rally afterwards. Trading volume was very high on Wednesday and Thursday as major Gold buyers appeared every time Gold reached the $1,700 per ounce level. This week Gold could test major support at $1,686, but I expect to see it close the week above $1,700 by the weekend. 

THE FEDERAL RESERVE ANNOUNCEMENT BULLISH FOR GOLD

First, the Fed, as expected, said last Wednesday it will buy $45 billion per month of Treasury securities starting January 2013, replacing “Operation Twist”, which will expire at the end of this year. This will be in addition to its open-ended bond buying program (QE3) that it announced in September. Therefore, the U.S. central bank is now committed to purchasing $85 billion in new debt per month or about $1 trillion over a full year. This will bring the total Federal Reserve balance sheet to an unprecedented $4 trillion by year end 2013. The Fed will essentially triple the rate of debasement of the U.S. Dollar in just three years.

In a precedent-setting move, the FOMC will tie interest rates to economic targets. The national nonfarm unemployment rate will have to drop to 6.5 percent before the Fed moves rates up from the current exceptionally low level of 0-0.25 percent. Previously, the policy committee pledged to keep rates low until mid-2015.

BANK OF AMERICA IS BULLISH ON GOLD

Bank of America’s John Bilton, European investment strategist, told reporters in London today, “We expect large-scale policy easing by the Fed and the ECB should push Gold prices higher,” the analysts wrote, forecasting Gold prices at $2,000 an ounce for 2013 and $2,400 for the end of 2014. “A stronger Chinese economy will likely lend support to supply constrained metals next year, and we expect copper prices to average $7,750 a ton in the fourth quarter of 2013.”

GOLD FEVER HITS GERMAN INVESTORS

Despite the relative health of the German economy compared to their Eurozone peers, Germans are investing in physical Gold due to concerns over their fiscal well-being.

A new study by the Steinbeis Research Center for Financial Services has discovered that 69% of Germans have invested in Gold, with around 50% of them keeping bullion in their own homes;  48% stash their Gold in bank vaults.

SILVER 

Silver closed last Friday at $32.30 per ounce, down $0.83 per ounce. This is the third week in a row Silver has closed lower, testing its $32 per ounce support level. The Fiscal Cliff issues seem to affect Silver more than Gold, as Silver is more sensitive to a potential recession if Congress is not able to pass legislation. This year end, Silver correction could test the $32 per ounce support level, but I doubt it would test the long term $30 per ounce support level. The Gold-Silver price ratio moved higher last week to 52.48-to-1.

CHINA HAS A BIG APPETITE FOR SILVER

Total Silver demand in China has grown by over 100 million ounces in the past ten years, to a record 170.7 million troy ounces. For more details see http://www.mintstategold.com/investor-education/cat/news/post/china_major_role_Silver_market/. 

PLATINUM & PALLADIUM

In the face of lower prices for Gold and Silver for the past three weeks, Platinum and Palladium have been higher. Last Friday Platinum closed a $1,614.50, the highest weekend close this month, while Palladium closed at $702 per ounce, the highest weekend close since March 2012.  What is driving this price strength is the shortage in above ground supplies of both metals. The labor strikes in South Africa’s Platinum & Palladium mines continue to be a major contributor to the supply shortages. Platinum is now at an $82.50 per ounce discount to the price of Gold.

RECOMMENDED INVESTMENT COMMITMENT AND DIVERSIFICATION:

Precious Metal commitment: Minimum of 35% of investment capital

Diversification:  Gold 50%, Silver 40%, Platinum & Palladium 10%

Diversification includes 50% in long term investment quality rare coins and 50% short term bullion products

REMEMBER THE BLOG

If you want to be updated on what is happening in the Gold, Silver, and Rare Coin markets any weekday, our company offers a daily blog Monday through Friday at www.stupplerblog.com

All statements, opinions, pricing, and ideas herein are believed to be reliable, truthful and accurate to the best of the Stuppler & Company’s knowledge at this time.  Stuppler & Company disclaims and is not liable for any claims or losses which may be incurred by third parties while relying on information published herein.  Individuals should not look at this publication as giving finance or investment advice or information for their individual suitability.  All readers are advised to independently verify all representations made herein or by its representatives for your individual suitability before making your investment or collecting decisions.