Monthly Archives: February 2012

Precious Metal Miners’ Reporting Season Underway – Results are Strong so Far

Precious metal prices may have taken a tumble in the fourth quarter, but fourth quarter and full year results for precious metal miners are coming in strong.  Furthermore, with the strong start for precious metals in 2012, with an over 20% rise in silver, and over 11% rise in gold, first quarter 2012 results look set to extend the strong run for precious metal miners.

The next few days will see the bulk of precious metal miners reporting.

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February 29th Will Be the Day to Watch

February 29th 2012 is a day to watch – The second LTRO could be a positive catalyst for Gold and Silver

One of the most powerful factors affecting the direction of precious metals has been the bond buying by central banks the world over.  While the ECB has officially stated its opposition to enacting a sizable bond buying purchase program akin to the programs seen in Japan, the U.K., and the United States, its Securities Market Programme (SMP) has been a significant tool in Europe’s fight to contain the sovereign debt crisis.  While this program still totals less the 500 billion EUR, it is exactly the type of quantitative easing that has been seen in Japan, the U.K., and the U.S.  Nonetheless, the ECB can claim that it is not monetizing the debt of member nations (though it clearly is), since the scale of its operations are dwarfed by its peers.

What has arguably been more significant for the fortunes of at-risk European sovereigns was December 21, 2011’s Long-Term-Refinancing-Operation (LTRO).  This operation provided unlimited 3-year funding for European banks at 1%, and banks ultimately took a total of 489 billion EUR of funding from the ECB, well above the amount that had been forecast.  European banks and sovereigns, facing a mountain of refinancing needs in 2012, and increasingly shut out of the wholesale funding market, desperately needed this sort of cheap funding.  The first LTRO coincided with a bottoming in risk assets and precious metals, and the start of one of the best starts for both in over a decade.  Why is all this important?  Because on February 29th, 2012, the ECB is scheduled to do its second LTRO, and current expectations see an even larger amount of funds lent out to European banks.

There can be little doubt as February 29th approaches, comparisons to what happened after the first LTRO will appear with ever greater frequency.  It is hard to see how such a large money printing excercise won’t ultimately impact all markets, including those for gold and silver.

Other Recent Central Bank Monetary Expansion Announcements

On February 13th, the Bank of Japan (BoJ) announced that it would expand its bond buying operation by 10 trillion yen, equivelant to $130 billion USD.  This is not a trivial amount as evidenced by the decline in the value of the JPY versus the USD since the announcement.  Significantly, the BoJ also announced its intention to target a 1% inflation target.

On February 9th, the Bank of England (BoE) announced that it would expand its bond buying operation by 50 billion pounds, equivelant to $79 billion USD.  Once again this is not a trivial amount as again evidenced by the decline in the value of the GBP verus the USD since the announcement.

The ongoing desire by central banks to lower interest rates, thereby reducing the relative attractiveness of their currency is almost universally seen as beneficial for precious metals, including gold and silver.  These recent announcements come ahead of what will likely be an outsized monetary exapansion by the ECB come February 29th, 2012.

Current ECB Balance Sheet Set to Soar – Will Rival U.S. Federal Reserve

Since the 2008 mortgage meltdown, the balance sheet of Western central banks have exploded, corresponding well with the rise in precious metals, including gold and silver.  The latest monetary expansion decision by the U.K. and Japan will expand the balance sheet of both respective central banks.  However, the upcoming second LTRO by the ECB, will lift the ECB’s balance sheet to rival the U.S. Federal Reserve.

Currently the ECB’s total balance sheet exceeds 2.5 trillion EUR, rising over $1 trillion EUR since 2008.

Comparatively, the Federal Reserve balance sheet now totals just over 2.8 trillion US dollars.  This compares to under $900 billion in 2008.  Said another way, the Fed’s balance sheet has expanded by just under $2 trillion dollars since 2008.

One thing that has been abundantly clear for precious metals investors is that a weaker USD has been negatively correlated with gold prices.  With all major world central banks engaged in very similar monetary easing endeavors, precious metals will likely remain well supported, extending the ongoing, multi-year rally for both gold and silver.

2/29/2012 will be ECB’s day, but the Federal Reserve may not be far behind with QE3

While the next day to watch is clearly the 2/29/2012 second LTRO by the ECB, it should be noted that today’s release of the latest FOMC minute meeting clearly showed that Fed members are considering additional bond purchases, or QE3, to further support the U.S. recovery.

However, first things first.  As February 29th draws nearer, expect expectations of another gigantic monetary expansion to provide ongoing support for the gold and silver market.  Visions that the Fed might quickly follow suit shouldn’t be overlooked however.  Expectations of ever easier monetary policy by the world’s central bank are likely to remain for the forseeable future, providing support for precious metal prices.

Gold and Silver Pause, Bernanke Testifies

Market Update: Gold and Silver Pause Following Bernanke Induced Jump, Eyes Remain on Greece

From our MARKET NEWS report:  Gold and silver are holding near unchanged levels following yesterday’s jump on the USD weakness in the wake of Ben Bernanke’s testimony before the Senate Budget Committee.  The USD reacted to sobering comments from the Fed Chairman who downplayed recent employment data, and indicated that the U.S. economy continues to operate at sub-optimal levels.  This kind of talk merely reinforces the possibility that the door to more monetary easing is open.  The EUR-USD breached the 1.32 level, which had been resistance, and is currently unchanged at 1.3215.  As usual, what’s bad for the USD is generally good for precious metals.

The other main story remains Greece.  Today saw the release of dismal budget numbers from Greece, whose tax revenue continues to plummet despite measures to close the budget gap.  Just released data show that “Revenues posted a 7% decline compared with January 2011, while the target that had been set in the budget provided for an 8.9$ annual increase.”  The implosion of Greece as an economy continues before the world’s eyes.  These latest data points certainly suggest that Greece will be hard pressed to stop the rot.  As has been the case for the last several days, financial markets continue to wait on the “imminent” accord that will release the second 130 billion EUR bailout.  Without these funds, Greece will most likely default on March 20th.  The implications of a default are unclear, but many commentators suggest the unintended consequences from such an event would be Lehman-Like.

For anyone interested in the current minutiae related to the Greek negotiations, Bloomberg has the following piece – Greece Premier Seeks Rescue Consensus Amid Quarrels.

Precious metals are showing little direction this morning, in-line with the USD.  Spot gold prices are off $1.01 at $1,745.76 per troy ounce.  Spot silver prices are up $0.10 at $34.32 per troy ounce.  The gold-silver ratio is at 50.92.

Commodities outside precious metals are mostly higher.  WTI crude futures are up $1.48 at $99.89 per barrel, again knocking on the $100 level.  Copper futures are up $0.0425 at $3.9185, closing in on the $4 per pound level.

Treasuries are essentially unchanged with the yield on the 10-year Treasury at 1.98%.  The USD is flat.

There are no significant economic releases scheduled for today.

Other News

Dow Jones is reporting that the ECB will make its final decision on whether to take part in reducing Greece’s debt burden.  The ECB represents the largest public creditor for Greece and its participation in a debt writedown is largely seen as neccessary if Greece’s debt burden is to become manageable.

San Francisco Fed President John Williams said that more bond buying, also known as QE3, should be provided if the economic recovery falters.  This jives well with Ben Bernanke’s recent congressional testimony.

S&P downgraded CME Group (CME) to AA- from AA, and left the outlook at negative.  The fallout from the October 31st bankruptcy of MF Global continues.  Shares of CME are not showing any negative reaction, up $6.97 at $283.02 per share.

Take Advantage:  Gainesville Coins is offering the 1 oz PAMP Gold Bar at as low as $24.99 over spot.  This is less than 2% over spot for one of the most popular gold bar investments.  Silver bullion investors should check out our offer on the 2012 American Eagle Silver Coin Monster Box at as low as $2.59 over spot.

A Strong Start for Gold and Silver in January

A Strong Start for Gold and Silver in January – Gold Gains 11.2%, Silver Gains 20.17%

The end of 2011 was a letdown for many precious investors as both gold and silver ended the year well off their respective yearly highs.  2012 has seen these memories overshadowed by a stellar start for precious metals, with gold and silver trouncing all other asset classes.

 

1/2/2012

1/31/2012

Avg

Gain

Gold

$ 1,567.40

$ 1,744.00

$ 1,656.12

11.20%

Silver

$ 27.96

$ 33.60

$ 30.76

20.17%

Gold Seeking to Extend a 11-Year Run

Gold’s 10.28% advance in 2011 masked a very poor end to the year.  From its highs of $1,920 per troy ounce in September of 2011, gold limped into the year end with a 18.43% decline.  Nonetheless, gold extended its winning ways to 11 straight years, and with gold’s strong start to 2012, extending this streak to 12 years looks like its in the cards.  In fact, January’s 11.20% run has more than halved the fourth quarter decline, and many market forecasters are predicting another run at the $2,000 per troy ounce level sometime in 2012.

Silver Easily Outpaces Gold to Start 2012

Silver lived up to its reputation of being a more volatile precious metal in 2011, with silver investors enduring dramatic volatility.  Silver had started 2011 with a flourish, rising 55% and reaching a multi-year high of just under $48 per troy ounce on May 1st before suffering some dramatic plunges in the wake of two series of CME margin rate hikes, and escalating fears over the global economy.

January of 2012 has seen silver sprint 20.17% higher, easily recovering from 2011’s declines, and outpacing virtually all other asset classes and commodities.  Whether 2012 represents a break-out for silver, or perhaps a repeat of 2011 remains to be seen.  There is no doubt that if silver continues to advance at this rate, fears that the CME will step in with another series of margin increases will be sure to follow.

What are the Factors Driving Precious Metal Demand in 2012

While providing a definitive answer to this question is impossible, there is no shortage of opinions on this topic.  Among the most compelling has been the actions of central banks.  Both Europe’s ECB, and the U.S.’s Federal Reserve have undertaken a series of monetary operations to ease tensions within the global financial system, and spur general economic activity.

On December 8th, 2011, the ECB’s provided European banks with 489 billion EUR of much needed liquidity.  This operation, known as long term refinancing operation (LTRO) coincided with the end of gold and silver’s downturn in 2011.

On January 1st, 2012, the Federal Reserve extended its Zero Interest Rate Policy (ZIRP) from mid-2013 to at least late 2014.  The Fed also laid the groundwork for another round of quantitative easing, or QE3.  Both gold and silver immediately rose following this announcement.

Fun Silver Fact – 2011 U.S. Mint Silver Eagle Sales Hit Record

A good gauge of investor demand for silver are the U.S. Mint’s annual silver eagle sales numbers.  Despite a drop-off in November and December, 2011 was easily a new record as just under 40 million silver eagles were sold, or 39,868,500.  The prior record was 2010’s 34,662,500 silver eagle coins sold.