Year-End Balancing Boosts Gold and Silver Prices

December 21st, 2015 by

gold-rallyAs we approach the end of the year, many stocks and hedge funds are pulling back and taking losses to balance their books to look most attractive for investors and tax purposes. Between this seasonal trend and a modest short squeeze on the paper gold markets, precious metal prices were firmer on Monday morning.

By 10:30 am ET, Spot gold was up 1.2% to a shade below $1,080 per ounce. It was followed higher by silver and platinum, up 1.4% and 2.1%, respectively. This pulled spot silver back above $14.35 per ounce after slipping below $14/oz for most of last week, while the platinum price surged above $875/oz. Palladium remained flat at $560/oz.

Interestingly, even with the influence of year-end consolidation and tax-balancing, most stock indices around the globe (including the U.S. markets) were slightly in positive territory. This followed a shellacking for stocks on Friday: the Dow lost over 2%, the S&P fell almost 1.8%, and the Nasdaq “only” tracked 1.6% lower.

Gold and Silver COMEX Futures

NASDAQ_studioFor the fourth or fifth time since the Federal Reserve really began giving clear signals about its actions earlier this winter, speculators on the paper markets for the precious metals (the COMEX) were caught in a bit of a short squeeze on their perpetual bets that gold prices will continue to fall. With the customary end-of-the-year window-dressing from the securities and funds traded on Wall Street, the metals advanced in spite of a largely steady dollar. The DXY index was essentially flat at 98.6 in early trading Monday.

As has been the case in the other recent instances of traders getting stuck covering their shorts, even modest volumes of buying momentum on the gold market begets more upward pressure from short-covering. This pushed COMEX futures for both gold and silver higher (the February gold contract and the March silver contract), yet both markets remain in a state of backwardation. For the time being, it is unavoidable that the precious metals and broader commodities markets are going to be partly tied to the slumping crude oil market.

Nearing Technical Bottom?

Its correlation with crude oil notwithstanding, the gold price could be approaching a cyclical bottom when a technical perspective is considered. Gold recently tested the $1,040 to $1,050 range as it hit fresh lows, and prices quickly bounced back in the $1,070 to $1,080 spread. Even if this doesn’t necessarily point toward a trend reversal for prices, it does at least demonstrate that there is strong support for gold prices not to fall below this level. It would likely take some yet-unforeseen outside factor to push the gold price back down to $1,000 per ounce, which holds its own psychological importance as a support level, as well.

Markets Closed for Upcoming Holidays

xmas-ornamentLooking ahead at the next few weeks, this is the holiday schedule for the gold and silver markets:

OPEN: All day New Year’s Eve (December 31st); Closes early at 1:45 pm ET on Christmas Eve (December 24th); All day on December 28th (sometimes a bank holiday in Britain)

CLOSED: All day Christmas Day (December 25th); All day New Year’s Day (January 1st)

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.