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The Year in Precious Metals

December 21, 2012 - 2012 brought higher gold and silver prices but fell short of retracing record levels from 2011. To date, silver outperformed gold on the year with an increase of 9.4 percent against gold’s 6.6 percent.

In early trade on Friday, gold continued to stabilize after falling to multi-month lows on the most recent iterations of the fiscal cliff debate. After touching $1,635.09 on Thursday, gold climbed back to $1,649.20 per troy ounce as U.S. gold futures for February delivery gained 0.25 percent to $1,650.00. The drop, following the failure of House Speaker John Boehner to force concessions from the President on the U.S. fiscal cliff, has so far taken 3 percent from the price of gold.

Analysts have begun voicing the difficulty in teasing out the strands of the precious metals markets because in the past year they have generally performed in counter-intuitive ways, the current drop on the fiscal cliff being no different.

As an example, the budget debate was a support for the market since the month of November as the uncertainty it engender drove many investors to put money in precious metals. This week, however, it has been behaving more like a risk-asset than a safe-haven asset as investors take profits and leave the market until after the holidays.

Many geopolitical and economic forces would place the price of gold higher than it currently is, including the ongoing and endemic crisis in Europe, the further announcement of $85 billion per month in monetary stimulus from the Federal Reserve, and record sales of American Eagle Gold and Silver Coins at the U.S. Mint.

However, the crisis in Europe is completely underreported as markets focus somewhat shortsightedly on the fiscal cliff, the stimulus announced by the Federal Reserve in September and this month did not give the kind of surge to precious metals seen in previous episodes of QE, and the sales of coins appears to be an underground story as physical demand for gold and silver coins decouples from the current market price dynamics.

Profit-taking going into the holidays, sell-orders triggered in thin holiday trading, and an irrational market reaction to political debate appear to be the dominant market newsmakers.

Indeed, projections for gold almost unanimously place the precious metal at higher price levels in 2013 than experienced early this week, prior to the 3 percent drop. Banks including UBS and Bank of America see higher prices for metals next year, forecasting gold over $2,000 per troy ounce and silver outperforming gold on a percentage basis.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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