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Sales Up as Prices Dips on FOMC Minutes

January 7, 2013 - The price of gold dipped following the release of the Federal Reserve’s FOMC minutes that indicated some members of the policy-making committee may be inclined to a slowing or cessation of current fiscal stimulus by the end of 2013. Market prices reacted in early trade on Friday with a dip of 3 percent, though the metal rebounded following the release of the U.S. nonfarm payrolls report by the Labor Department.

The Labor Department’s data revealed that the U.S. economy added 155,000 jobs during the month of December, short of the 160,000 expected by economists. The unemployment rate stood at 7.8 percent, which is the same as November’s upwardly revised figure. These numbers brought confidence back to markets as the Federal Reserve had previously announced it would maintain stimulus measures until the unemployment rate drops below 6.5 percent with inflation in check.

The volatility of precious metals on the news has stirred some markets, though sales of U.S. bullion coins at the U.S. Mint continue to exhibit a heightened demand for physical U.S. gold and silver bullion.

Additionally, the fundamental drivers of the gold market have not changed, though the cessation of fiscal stimulus at some point in the future does change the dynamics of what currently underpins the gold market.

Kurt Pfafflin, a senior broker with Daniels Trading, said he believes this is an overreaction, speaking of the day’s losses in the gold market. He went on to say he did not expect the Fed’s easing efforts to end any time soon and that low interest rates may continue to send investors looking for a higher yield into gold.

Mark Luschini, chief investment strategist of Janney Montgomery Scott, said that put a dent on one of the underpinnings of gold, which is expansionary monetary policy.

Of course, the concern of expansionary monetary policy has always been inflation, which is still a necessary by-product of the Federal Reserve’s accomplished intervention thus far.

Additionally, the concerns over the paper gold and silver that has been flooding the market in recent years are still very real. Rehypothecation schemes surfacing in late 2011 and early 2012 revealed that paper contracts for gold and silver bullion trade on the order of hundreds over the underlying physical, meaning for every hundred paper contracts, conservatively, there is one underlying ounce of gold bullion. The nature of the investment, and the possibility that a threshold of contract-holders could take delivery, indicates current values for gold and silver are low, given the underlying dynamics.


Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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