Small Factors, Small Moves

Small Factors, Small Moves

A handful of small factors nudged gold lower today. News was scant, speculation was subdued. Thus we saw little in the way of movement. 

Additionally, the whole Eastern Seaboard's being smothered by heavy winter weather helped keep trading down in New York, Boston and Philly. Chicago was no better off.

We are bound to see a lot of indecisiveness before the FOMC meeting on January 28-29. The latter day a news release and often a sort speech flesh out the moves, if any.

The dollar rose today as more analysts and traders embraced the idea that QE3 will indeed be tapered a little more at that meeting. They also are getting more convinced of continued U.S. economic growth.

Forecasts for other industrialized countries snapped up the pace, as well, most notably Great Britain and Japan. Curiously, China's growth is slowing. Some analysts are now saying that the golden era for the Asian giant may finally be winding down to a more normal growth rate. 

Speaking of China, bullion demand there has slacked off immensely following the end of the Lunar New Year celebrations, more than offsetting a surprise boost to the gold tonnage flowing back into gold ETFs around the globe. The speculation is that the ETFs sold too much gold, ironic when you look back to the race of the rats jumping off a sinking ship last year. Oops... give us some of that gold back, please. 

Many gold observers are beginning to believe that bullion's positive start to 2014 is fading due to the prospects of a vastly improving U.S. economy and the expectation of quicker reductions to the monthly bond-purchasing efforts by the Fed.

While we usually let other portions of our newsletter speak to technical questions, there comes a time when technical moves become part of the fundamentals. Gold's repeated failure to break above key resistance just below $1,260 an ounce prompted investors to take profits and reconnoiter one more time about the yellow metal's future direction. Large independent trader Dennis Gartman said today, "Having once again seen that the 'seller' at the $1,250-1,255 level was formidable, we have no choice but to reduce our exposure a bit.

Yesterday the London Bullion Market Association released its 2014 projections for silver as well as gold. We covered the gold outlook from London in yesterday's newsletter and on our website. So, onward to silver.

The LBMA said the average forecast trading range for silver was $16.37 - $23.94. Prices may be pressured due to "a large surplus supply in the silver market and [because] industrial demand could be hit if global GDP growth is weak." Forecasters are concerned that this may lead to silver ETFs liquidating their positions. Let's not forget what that did to gold last year.

The LBMA stated that silver does provide a good bridge to the industrial precious metals, platinum and palladium. Both are expected to do well this year because of the potential growth in industrial demand. That is where silver might also benefit, "particularly [in] the photovoltaic sector."