Morning Market Update: Jan 8

January 8th, 2013 by

A huge surge in physical gold buying in Asia countered any drops in paper contracts overnight, in advance of the new Lunar New Year.  Reuters reports “The trading volume on the Shanghai Gold Exchange’s 99.99 gold physical contract shot through the roof on Monday, hitting a record of 19,504.8 kilograms, after double-counting transactions in both directions.”  Chinese market analyst for Reuters Wang Tao suggests that gold could hit $1,665 an ounce today.

In U.S. trading, gold and silver are moderately up, as stocks open in negative territory in advance of corporate earnings reports that are expected to be disappointing. The rise in precious metals comes against a backdrop of a strengthening dollar, which is unusual, and may show that the gold bulls are regaining a toehold. Iran has reported that oil exports are down 45% from nine months ago, with no sign of increasing soon. This had led to firming crude oil prices, a good influence on gold.

Gold and silver are still dealing with aftershocks of the details of December’s FOMC minutes, where some chairmen expressed concern about continuing high levels of monthly money printing by the Fed. Some analyst believe, however, that the seeds for inflation have already been planted, and the Fed could not suddenly stop quantitative easing without plunging the nation into recession.  TD Securities still sees a bullish future for gold going forward, stating that the gold market overreacted to the release of the December FOMC minutes.  “While we agree that the Fed will eventually unwind the monetary accommodation, it is too early to react to this possibility given current macro and political developments,” TDS says. “The economic environment around the world and in the U.S. is still quite poor.”

The upcoming debt ceiling and budget negotiations between President Obama and the Congress will mean less government spending one way or the other, which should drag on the still-fragile U.S. economy and delay the stated Fed threshold of 6.5% unemployment for easing off bond purchases.

by David Peterson