CME Reduces Futures Gold Margins Requirements and Boosts Silver, Fiscal Cliff Deal Sends Silver Prices Sharply Higher, Hawkish Federal Reserve Minutes Lead to Sell off in Silver, Mixed U.S. Jobs Report Helps Silver Recover.
Silver started the first week of 2013 on a wild roller coaster ride of volatility that saw it finally end just above where it started the week. The white metal opened the 31st in spot markets at $30.12 and rallied all the way to $31.43 before it plunged to $29.24 late in the week and then ended the spot market close Friday the 4th at $30.20.
Silver rallied and reeled this past week as the CME group cut gold futures margins, Congress bought time with a weak fiscal cliff deal, the Federal Reserve hinted it might end its latest quantitative easing program sooner than anticipated, and a U.S. jobs report proved to be a mixed bag.
CME Reduces Futures Gold Margins Requirements and Boosts Silver
The CME Group that controls an enormous share of world futures markets came out in support of the precious metals early this week. They announced Friday the 28th that they would lower gold margins to open and hold positions by 11% starting on January 2nd.
This bullish move that made it cheaper to control leveraged gold positions sent the metal higher early in the week. Silver moved along sympathetically with gold as the prices of the two metals generally rise in tandem.
Fiscal Cliff Deal Sends Silver Prices Sharply Higher
The biggest fundamental news that moved silver significantly higher in the first half of the week was the Congress finally making a deal on the fiscal cliff. The markets had gone back and forth in agony as first one side and then another continued to say that a deal appeared unlikely almost to the bitter end of the year.
Once lawmakers announced Wednesday that a deal was reached without any spending cuts so far, this offered another bullish support for the precious metals. There was relief that a deal had been reached; and at least for the time being, money will continue to be printed, borrowed, and spent, and that supports silver prices because of fears of inflation.
The other side of the fiscal cliff deal is that it is incomplete. It has pushed forward the spending cuts and also raising the debt ceiling for another two months. This means another and bigger battle in Congress looms between now and March.
The safe haven side of silver also received a boost from this ongoing uncertainty. Silver was the biggest winner of the precious metals complex from the initial fiscal cliff reaction. It had risen over three percent and touched $31.43 by the end of the trading day Wednesday when Congress announced the deal.
Hawkish Federal Reserve Minutes Lead to Sell off in Silver
On Thursday the tide began to turn against silver and the precious metals. The news that stopped the rally in the white metal dead in its tracks came as the Federal Reserve released the minutes of their latest meeting. Several of the members of the committee indicated that they should consider stopping the latest Quantitative Easing program before the end of the year.
This is a far cry from the committee actually stopping their latest $85 billion per month of money printing program, yet it was enough to spook silver and gold on the possibility that the Fed will not practice so much inflationary activity in the quarters to come. Silver tumbled as low as $29.24 on the news Thursday and looked like it might be in danger of breaching the critical support at $29 per ounce.
Mixed U.S. Jobs Report Helps Silver Recover
Silver staged an impressive recovery on the heels of the U.S. monthly jobs report that the labor department released Friday. Non-Farm payrolls for December rose by 155,000. The report did not match expectations for a higher number. This drove investors who had been eager to sell silver and gold after the more aggressive Fed minutes back into the metals as they saw that the economy is perhaps not improving so fast after all. Silver managed to claw its way back up above $30 per ounce to finish the spot market week at $30.20, up just slightly for the week.
Take Away On Silver Market Prices
Silver finished a tumultuous first week of 2013 on a high note. Though it was wildly higher and lower throughout the course of the week, it still managed to close back above the psychologically important $30 per ounce by the end of spot markets Friday. The still critical support line of $29 per ounce held up when silver was selling off hard Thursday.
Regardless of the opinions of a few Federal Reserve Committee members that they should stop the quantitative easing, the decision to do so is still far away and far from certain. If the U.S. and world economy do pick up, this will be bullish for the industrial metals use side of silver too. Despite short term price swings that unsettled some silver watchers this week, the white metal still looks bright for the New Year.