Market Recap: Week of 06/21/10 -06/25/10

Gold and other precious metals peaked early in the week, declined over the following three days and rebound somewhat on Friday. The Federal Reserve’s announcements about interest rates and the GDP dampened dollar expectations; China’s announcement of their intention to allow the Yuan to appreciate against the dollar sent investors after gold.

Data released earlier this week showed a revised first quarter GDP growth figure of 2.7%. When compared to the 3% quoted last month, investors were discouraged in all things dollar. The Federal Reserve, in fact, acknowledged this disappointment, and pledged to keep interest rates “very low” for “a long time.”

The People’s Bank of China announced – ahead of the highly anticipated request by President Obama at the G-20 summit this weekend – that it would allow the Yuan to appreciate against the dollar. While they have announced no specific plans as to how, to what extent, or in what timeframe this would be accomplished, the sentiment has already been absorbed by precious metals markets as investors fear the Chinese central bank will use their new-found power to buy gold instead of a comparatively weak dollar.

Due to disappointing announcements about GDP growth and future interest rates, as well as expectations of the Yuan, precious metals markets fluctuated greatly with record highs at the beginning of the week, a slight decline, and then an upward trend Friday.

Gold: Gold hit yet another all-time high Monday at $1,266.50/oz.
After the Fed announced that it would keep interest rates low, PM investors realized that the global dollar sentiment was likely to falter and that there was a reduced opportunity cost for holding gold. Price levels approached Monday’s high again on Friday.

Silver: Silver beat last week’s high of $19.30 on Monday, trading just below $19.50. Like gold, however, silver reacted adversely to the major financial announcements of the week. However, anticipating the announcement by the People’s Bank of China to let the Yuan float, and the resulting “spillover” into silver markets, investors bought back in later in the week boosting levels to $19.17 on Friday.

Palladium & Platinum: Palladium and Platinum both hit record highs Monday, trading at over $500 and $1600 per ounce respectively. Particular concern over the future of the supply of Palladium is likely to bolster prices levels as it is not yet known how much, if any, Russia will release from its stockpiles.

In light of 1) recent announcements by various arms of the US government, 2) the uncertainty that continues to plague the Euro, 3) the almost certain increase in demand by the Chinese government of gold and 4) an uncertainty as to the future of the supply of palladium, precious metals prices are expected to continue their upward trends, at least in the short term.

Leave a Reply