CelticGold Market Report December 7th 2015
Gold ended Friday’s session about 2% higher to close at $1,084.10. The yellow metal had a strong week finishing up about 2.6%. The catalyst for higher Gold prices this week was a shift in sentiment amongst traders and investors regarding the US Dollar.
With the announcement of a strong jobs report in the US on Friday, market participants now believe that a rate hike is fully priced into the markets. Meaning that more upside strength in the US Dollar may be limited.
So this brings into question whether or not the bull run for the Dollar over the past couple of years may be coming to an end. As result the Gold trade could be back in play at least for the short term. Gold now needs to follow through and push prices past $1,100 as a next step.
Another factor that could have contributed to the Gold rally Friday was the lack of any real new stimulus measures from the ECB. Many market participants expected a major QE announcement from the ECB, which did not occur.
Without any added QE from Europe, traders and investors most likely closed out their Dollar long positions at least for the time being. While Friday’s move was impressive, keep in mind that Gold’s rise most likely came as a result of short covering.
So let’s see whether the shifting sentiment toward Gold can produce a sustained rally into the end of the year.
ECB Disappoints Markets
The big story of the week was the much anticipated announcement from the European Central Bank on its stimulus package. According to an article on CNBC, the ECB will increase the type of bonds it will buy but will not increase the 60 billion monthly bond purchases. (Source: CNBC 2015 December 3rd)
According to the article the ECB also announced a negative deposit rate of -0.3%. The announcement of no new stimulus shocked the financial markets on Thursday. The German DAX stock index plummeting by 400 points and the Euro soared some 3.1% against the Dollar.
The massive Euro surge vs. the Dollar is a huge daily move for a currency and caught many traders and investors by surprise. While the ECB will extend asset purchases by six months to March 2017, market participates were overwhelmingly expecting monthly asset purchase to increase by 10 or 20 billion euro’s a month.
Below is a summary of the key changes to the ECB stimulus plan:
- The ECB cut its deposit rate by 0.1pp to -0.3pc and extended QE to March 2017 or "beyond if necessary".
- Asset purchases will now include regional and local government debt, and be reinvested upon maturity
(Source: telegraph.uk.co 2015 December 3rd)
According to the telegraph article, there was not unanimous support to boost QE amongst officials. Jens Weidmann, the president of Germany’s Bundesbank did not consider additional easing necessary.
It does not look like there is consensus from the the members of the ECB on the best approach moving forward.
ECB vs. The FED
Now all eyes will turn from the recent decision by the ECB to the Fed. On Friday the US labor department announced that 211,000 jobs were created in November which slightly exceeded expectations.
As a result, traders are now expecting the Federal Reserve to raise rates by 1/4 percent at its next policy meeting on December 15-16th.
What is interesting now is that Gold has begun to rise in anticipation of the interest rate hike by the Fed. So we’’ll have to see how this all plays out in the currency markets between the Euro, the Dollar and also Gold.
One thing to note is that in the last major bull market for Gold in the 1970’s, Gold rose as interest rates rose. However, it is not yet clear whether a sustained move up interest rates is upon us.
If the Fed initiates a rate hike this month, the bond market may begin to take over and demand steadily higher rates moving forward. Whatever happens its likely to produce more market turmoil in the coming months.
Market Update for Silver
As you would expect, Silver’s week was even more impressive than Gold. Silver ended the week at $14.52 and was up about 3.6% for the week. While Silver’s move was impressive this week, it not yet clear whether a trend change imminent.
As the month of December progresses expect more turbulence in the currency markets which will impact both Gold and Silver. At this point a good case can be made for higher Silver prices and a good case can be made for flat to lower prices in the short term. We’ll have to see how it all plays out.
For this weeks update on the Silver market we wanted to focus on the incredible demand taking place in the physical market right now. It does seem that more and more investors are turning to physical Gold and Silver as the financial markets become ever more uncertain and turbulent.
Sales of Silver Coins Will Hit 130 Million Ounces This Year
In an article on SRSroccoreport.com, according to the Silver Institute’s 2015 Interim Report, total sales of official silver coins will reach 130 million oz (Moz) this year. This would be a record amount of Silver coin sales.
Another highlight from the article is that the Royal Canadian Mint Silver Maple Leaf Sales hit a record between Q1-Q3 2015. Total Silver Maple sales Q1-Q3 are 25.2 Moz versus 20.8 Moz last year up 21%
You can read the full article below.
In addition, according to an article in Casey Research, the US Mint sold 44.67 million ounces of Silver American Eagles so far this year. This number is above last years all time record of 44 million ounces.
Also, November sales were 41% higher than they were in November 2014. (Source: Casey Research 2015 December 2nd)
More investors see the danger in the currency markets are loading up on physical Gold and Silver. Eventually the strong fundamentals will kick in for Gold and Silver, which will likely result in much higher prices.
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