China Tapping Breaks on Economic Growth Threatens Silver Industrial Demand Prospects, Hedge Funds Dramatically Cut Gold Holdings, Fed January Minutes Sound More Hawkish on Ending QE and Spook Precious Metals, European Economic Data Shows Continued Deterioration in EU Economy, Death Cross in Gold May Actually Be Bullish for Gold and Silver.
Just when you thought silver was finally due for a corrective bounce, the white metal got hammered yet again in the week that ended February 22nd. Those of you who hoped the precious metals might find some support were disappointed as silver opened at $29.92 per ounce then proceeded to plummet to $28.72 by the end of the spot market close Friday.
This represented an eye watering over four percent drop for the week. A technical scare in gold helped to see silver down the primrose path. Fundamental news bytes this week, such as China tapping the brakes on their economic growth, as hedge funds cutting their gold holdings, as Fed minutes appearing to sound more hawkish on QE3, and as European Union economic data continuing to show deterioration in the giant economic block, also helped to tip silver over another short term cliff.
China Tapping Breaks on Economic Growth Threatens Silver Industrial Demand Prospects
China at first appeared like it might help silver prices back on their horse early in the week as dip buying did materialize out of Asia on Sunday night and Monday morning. At the same time, reports from China showed that the central planners are looking to put restrictions on home financing in a bid to slow down the runaway rise in property prices.
This scared commodities markets and players with the idea that China would brake its economic growth rate in coming weeks, and helped to start the snowball down in silver and gold prices that lasted most of the week.
Hedge Funds Dramatically Cut Gold Holdings
As if this news was not nerve wracking enough for already skittish metals investors, billionaire George Soros frightened the silver and gold players when his hedge fund filings showed that he sold off all of his Exchange Traded Funds’ holdings in gold in the last quarter of 2012. Another fund manager Bacon cut his gold holdings by over a third as well.
These large sellers in gold products slammed silver as well, as they showed dramatic declines in so called smart money investors of the precious metals complex. Fortunately for gold and silver, John Paulson, the largest holder of the ETF GLD, did not reduce his holdings for the quarter, or the carnage in the metals might have been even worse early in the week.
Fed January Minutes Sound More Hawkish on Ending QE and Spook Precious Metals
Anyone paying attention to the size and scope of the scary mountain of over $16 trillion in US debt understands that the Fed can never cut its QE3 program unless it wants to bankrupt the Federal government with higher real interest rates and payments on the debt. Despite this well telegraphed and obvious fact, observers still read the January minutes of the Federal Reserve meeting with fear and trepidation.
They saw that some of the members believe the amount of the $85 billion per month QE3 program should be reduced to reflect a so called improvement in the US economic fundamentals. They promised to address the dissension in the Fed Committee ranks at their March meeting. Investors and analysts got scared that the punchbowl might be taken away from the tenuous US economic party and hit the sell button on their gold and silver holdings in a poorly thought out knee jerk reaction.
If the Fed were able to wind down this QE program as some fear, then it would indeed by bearish for gold and silver. Since they can not do it any time in the near future in practice, this was a poor reason for selling the white metal this past week. The March meeting will likely show this to have been no more than idle debate on the part of a few guilty feeling Fed members.
European Economic Data Shows Continued Deterioration in EU Economy
As the largest economic block in the world, the fate of the European Union economy has tremendous influences on the direction of commodities prices, including silver. Thursday saw the governments release Eurozone data for the PMI at 47.3, which was both below the expected 49.0 and the January low of 48.6.
Then on Friday, the ECB said that the European banks that took out long term refinancing loans are paying them back slower than anticipated, dampening expectations that the ECB will be able to tighten up on its monetary policy in the near future. Finally, the European Commission changed its prediction for the EU economy to -.3% for 2013, which would be a second year of decline after 2012’s abysmal performance.
Both Spain and Greece’s unemployment rates are forecast to be 27% for 2013, with Portugal’s little better at 17%. All of the sobering economic news from Europe hit the Euro hard, and took gold and silver prices with it, as the two metals generally follow the Euro’s cue.
Death Cross in Gold May Actually Be Bullish for Gold and Silver
If you have paid much attention to financial news this past week, then you have probably heard the horrifying sounding term called the Death Cross applied to poor gold. While this sounds like the end of an 11 year bull market run in technical chart terms, it is far from the truth.
On Wednesday, Dow Jones reported that analyst Ryan Detrick of Schaeffer’s Investment Research has demonstrated using historical data that when gold experiences the death cross on the charts, the prices typically rally some in the months and weeks that follow this scary sounding technical chart apparition.
MKS Capital and Barclays Capital both agree that the metal is in store for a technical rebound after weeks of getting pounded, and that the long term bullish trend in gold remains intact and unsullied still, so long as gold remains over the $1,520-$1,525 water mark of the 36 month old uptrend. If gold is to rally here, silver should follow in its big brother’s footsteps.
Take Away On Silver Market Prices
Silver has been taken out back with big brother gold to the proverbial woodshed and beat within an inch of its life, but it is not dead, any more than gold is. While the critical $28 support holds for silver, a comeback rally is still in the cards.
Do not be misled by miscreants and fools who say that the Federal Reserve will take away the economic punchbowl anytime in the near future. Big Ben Bernake and his cohorts are far too concerned about their legacies to be labeled as the men who destroyed the U.S. budget and financial credibility once and for all by raising interest rates to levels that the country can no longer support with its over $16 trillion in debt.
Silver and gold will both be the lone safe haven beacons in the stormy morass that follows if the Fed ever mans up and invites the day of reckoning on the U.S. financial house of cards. Until then, their bluster is all smoke and mirrors designed to keep you from looking at the man behind the curtain. The rally in silver will not go away; it is here to stay.