Morning Market Update Dec 20

December 20th, 2012 by

Gold, silver, AND the dollar were hammered simultaneously in New York this morning, after choppy trading on low volume in Asia. Chinese markets were lower, but rallied to positive territory before the close. The European markets did the same, as the broader index overcame initial drag caused by falling European tech stocks.

The euro is once again posting highs against the dollar, as the ECB takes the recent jump in the Ifo Business Climate Index in Germany as evidence that the EU economy may not be as bad off as presumed. This will probably weigh on the ECB’s decision whether to launch further easing.

Back in the U.S., third quarter GDP growth was revised higher this morning to 3.1% from a previously reported 2.7%,  exceeding all estimations. New jobless claims rose 17,000, almost exactly hitting expectations, while the floating 4-week average of first time jobless claims fell to a 2 month low. Continuing jobless claims, however, rose 12,000 to 3.22 million according to the Labor Dept.

Gold is trading below its $1,661/oz 200-day moving average today for the first time since August.  At 9am, spot gold was trading at $1,653.00 an ounce, silver at $30.24, platinum at $1,572.00 and palladium at $678.00. Many players may be standing on the sidelines in this low volume environment, discouraged by paper plays by large speculators and puzzled by precious metal refusing to acknowledge the falling dollar and rising oil prices.

In the short term, the fiscal cliff is expected to depress gold and silver, as any outcome is going to be more or less recessionary for the first few months of the new year. Once that shock is over, awareness of the increasing amount of money being pumped into the economy by the Fed every month should resume center stage, a situation that Commerzbank says makes continued low gold prices “unsustainable.” Accelerated quantitative easing by the Bank of Japan will only fan the flames.

Brazil announced that it purchased 472,000 troy ounces of gold (nearly 14.7 metric tons) last month. This emphasizes the continued purchase of gold reserves by the central banks of the BRIC countries as well as other developing nations, as they try to limit their large exposure to the U.S. dollar (see yesterday’s “Top Ten Bank Gold Reserves” post for the low ratio of gold in their reserves.)

by David Peterson