Investors melted down their gold and silver bets Friday as the
dollar rallied on relief that the country didn't dive off the
fiscal cliff and worries that the Federal Reserve will turn off
the printing presses sooner than expected.
Both precious metals fell below their key 200-day moving
averages, confirming a strong downtrend. Traders' reactions to
the weekly unemployment report also fanned the day's
"The Fed minutes knocked some of the gold bulls off of their
pedestals and gave some badly needed confidence to the
beleaguered dollar," Timothy Evans, chief market strategist at
Long Leaf Trading in Chicago, said in an email.
In afternoon trade, gold futures prices sank 0.70% to 1,653.10
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, fell 0.75% to 159.99.
It's been stair stepping lower and has formed two lower highs and
two lower lows since peaking in October. Its break below its
200-day line Friday shows severe weakness.
Market Vectors Gold Miners ETF (
) skidded 0.93% to 44.72. It's been consolidating below its
200-day line for about two months.
Waverly Advisors of Corning, N.Y., re-entered its short
position in gold following Thursday's 1.2% drop.
Victor Sperandeo, CEO of EAM Partners and Alpha Financial
Technologies in Grapevine, Texas, attributed the weakness in gold
to rising lease rates, in which central banks loan their gold out
to profit from a yield. Since December gold lease rates climbed
from a negative 0.20% a year to 0.37% a year.
Evans of Long Leaf bought gold Friday when it fell to $1,640
an ounce on the belief that it's oversold and that the selling
momentum waned as gold fell to its Dec. 20 low.
Christopher Blasi, president of Neptune Global Holdings, a
Wilmington, Del., precious metals dealer, saw increased demand
for bullion as prices fell.
"The heavy physical off-take probably helped in keeping gold
above support at $1,625.00," Blasi observed. "If support at
$1,625.00 gives way, look for a move down to $1,610.00. A break
below $1,600.00 would be significant with the possibility of the
metal dropping sharply to $1,485.00."
Silver futures prices fell 0.53% to $30.04 an ounce.
IShares Silver Trust (
) tumbled 0.69% to 28.98 in heavy volume. It failed to hold above
its 200-day line when it broke above it earlier this week. It
fell below that key line Thursday, showing severe weakness.
Global X Silver Miners ETF (
) gapped down 1.63% to 22.83. It hit resistance when it tried to
break above its 50-day line earlier this week. But it trades
above its 200-day moving average, indicating a weak uptrend.
The precious metals bulls continue to see sell-offs as chances
to buy cheap.
"The eight largest central banks of the developed economies
are all following expansionary money printing policies and
systemic risk in the world's financial system not only remains
but is growing," Mark Thomas, founder of
Silver Price Advisor
, wrote in an email. "That hasn't changed because of some minutes
from a Federal Reserve meeting being released."
PowerShares DB U.S. Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, rose 0.18% to 22.03 -- a one-month high -- as the yen
continued to crumple on speculation of more monetary easing in
Japan. The island nation's new government is deliberately
debasing its currency to juice inflation in its stagnant
CurrencyShares Japanese Yen Trust (FXY) dropped 1.02% to
111.22, a new 2-1/2-year low Friday. It's tumbled 10.13% in the
past three months.
CurrencyShares Euro Trust (FXE) shed 0.03% to 129.54.
The dollar has appreciated for eight sessions straight. Its
strength intensified Thursday after the Federal Reserve's minutes
indicated some of its members want to end its economic stimulus
program before year's end.
If the Fed turns off the printing presses, the dollar would
appreciate as fewer of them would be in circulation. It would
also suggest the economy is improving.
"Longer term, who's kidding who? The Fed cannot stop QE, due
to this vicious cycle," Don Vandenbord, a portfolio manager at
Camarda Wealth Advisory in Fleming Island, Fla., with $250
million in assets under management, said in an email. "An end to
QE would stop the artificial cap on interest rates, and as they
take off to the upside, the U.S. government would not be able to
afford to pay the higher interest rates on its debt; the fed
demand would be needed to lower the rate, via QE."
Maintaining QE is more likely despite opposition from some
members because of the poor employment recovery, according to
"Today's employment data release for December came in at
155,000 vs. (an upwardly revised) prior 161,000 gain," Waverly
wrote in a daily client note. "Meanwhile, the headline
unemployment rate expanded from 7.7 to 7.8% for the month, still
well above the Fed's 6.5% target."
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