The Daily Nugget: Gold, Silver Likely To Trade Quietly

It will be interesting to see how both the gold price and silver celebrate US Independence Day given it is a shortened day’s trading today in the US and a holiday tomorrow. The two precious metals are likely to trade quietly in this time, before Friday’s non-farm payroll data release.

Some are warning that the Fourth of July holiday will cause some ‘wild gyrations’ in the price thanks to the light volume and fading liquidity in the market, as traders take the next three days off.

Should the non-farm payroll data come in weaker than expected then this will prompt some doubts over whether or not QE will be tapered in the coming few months. This would prove positive for the price of gold in the short-term.

This morning gold futures have pulled back from a near 4% gain achieved in the last two sessions. Better than expected US manufacturing data gave some oomph to the US dollar, causing gold to pull-back slightly. Unemployment data, released by the US Labour department also caused some upset, unemployment fell in May from a year earlier in two-thirds of the nation’s 372 metropolitan areas, but 27 still had jobless rates in excess of 10%.

Support was found for gold however, in Asia where there are reports of an upturn in gold investment demand thanks to the low price. Some analysts also report of an increase in institutional investment demand as we begin Q3.

The yellow metal also received some support from Federal Reserve New York president William Dudley who said that the FOMC wasn’t likely to begin tightening monetary policy, even if they begin tapering, which he believes is likely.

Yesterday Gold holdings of SPDR gold trust, the largest Gold backed ETF, fell further by 0.37% to 964.69 tons. Silver holdings of ishares silver trust, increased to 9,961.42 tons.

Developments in Egypt will also affect gold in the coming few days. The Egyptian army has called for the current president, President Morsi to step down. Mass protests continue to sweep through the capital, so far at least 16 people have been killed. Should the unrest continue to escalate then there will be some safe-haven demand for gold.

Bank gold price predictions
Despite yesterday’s announcement regarding their new Singapore gold vault, UBS are warning us not to buy gold, or in fact any raw material, but especially gold. Instead they want us to buy equities as slow economic growth with boost these more than commodities.

In contrast, JP Morgan for the first time in two years have come out in favour of gold and are, overall bullish on commodities. They listed ten factors which they believe will drive gold and other commodities, these included: rising inflation in production costs, changing China policies and a decoupling of the US dollar with commodity prices.

In terms of gold we see continued buying from central banks, slowing mine supply and negative interest rates as factors supporting the gold price and demand.

Bank of America Merrill Lynch (BAML) said yesterday that they haven’t ruled out gold going to below $1,000/oz but they do see the price stabilising in the short run.