Dillon Gage is proud to offer the following insights into the precious metals market from Roy Friedman. Roy has over 30 years of in-depth experience in all facets of precious metals. We offer Roy’s comments several times each week.
The FOMC decision to extend Operation Twist on Wednesday through the end of the year was not what the bulls were looking for as the precious metals complex sold off sharply once the decision was announced. The interpretation here, at least for the short term, is that with Euro zone political and economic problems being more severe than the economic downturn here in the U.S., the FOMC decision not to go with QE3 now will enable the USD to rally against the Euro. A stronger USD will pressure not only gold, but the entire commodity complex which is already under pressure as many CRB components are feeling the impact of increasing supply and decreasing demand, such as the crude oil market.
The sell-off continued yesterday. While investors were still reacting to the FOMC decision, the markets were shook up again on Thursday when S & P lowered the credit ratings of many of the largest banks and financial institutions. In some cases, ratings were lowered 2 and 3 notches. This, along with a recommendation from a Goldman Sachs unit to sell the S&P 500, lead to a very heavy sell off on Wall Street and, as we have seen many times, the selling pressure in equities took precious metals along for the ride.
With gold and silver down 4 and 6 percent respectively in this week alone, our markets are clearly on shaky legs. Gold is now in negative territory for the year, and a break of support at $1,550.00 will likely bring us a test of $1,500.00. While the FOMC did not give the market QE3 on Wednesday, Fed Chairman Bernanke’s comments later in the day certainly sounded to me like it would be coming later in the year. The Fed acknowledged this week that their targets for GDP were too optimistic and growth targets have now been lowered. In addition, they further acknowledged that unemployment rates will not fall to their target and the expected rate has now been raised. I continue to look for weak economic data in the U.S through the summer holiday season and expect the FOMC to go with QE3 sometime in the third quarter of this year. With Central Banks continuing to buy gold and QE3 still looming, I look at these dips in prices as buying opportunities, as I still expect a strong second half of the year rally for precious metals.
Good luck and have a good weekend,
Roy Friedman has a degree in economics and political science from the State University of New York at Binghamton. For more than 30 years, he has worked at all levels of he industry including as a trader for major Metals firms and international banks. For more information on Mr. Friedman, please click here.