Gold and silver prices brightened Thursday as the dollar
fizzled against the euro after the European Central Bank kept its
key interest rate the same. In doing so it snuffed expectations
for a cut in the near term.
In addition, ECB President Mario Draghi's positive comments
about the eurozone economy threw stock market investors into
"risk on" mode.
"He expressed confidence that indicators have turned positive
and has left the ECB confident we would see growth in the second
half," Timothy Evans, chief market strategist at Long Leaf
Trading in Chicago, said in an email. "He stated that
inflationary pressures remained contained and also cited other
factors including strong capital inflows into the euro area and a
rise in deposits at banks in periphery countries that indicate
potential growth in the second half."
Gold futures prices surged 1.17% to $1,678.40 an ounce.
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, popped 1.17% intraday
to 162.36 in heavy volume. It broke above its long-term 200-day
average, but still trades below its shorter-term 50-day moving
average, which indicates a weak uptrend.
Considering that gold bullion fell $120 an ounce over the past
month, it's normal for it to stage an oversold bounce, said David
Hunter, chief market strategist at KCCI Ltd., a brokerage firm in
Jersey City, N.J. As a contrarian, he believes precious metals
are seeing a short-lived bounce and that they'll plunge deeply
this year, owing to a "global deflationary downturn." His target
price on gold is $1,000 an ounce and silver $13 an ounce.
Gold is oversold, but could correct to $1,550 an ounce before
resuming an uptrend, says Marc Faber, Hong Kong-based publisher
of The Gloom Boom And Doom report.
"I am encouraged that sentiment is gradually turning
negative," Faber wrote in his January client missive. "I intend
to increase my gold position on any further weakness, although I
am concerned that U.S. dollar strength could be a headwind for a
strong gold rally."
Faber believes cash, stocks and high-yield bonds will lose
value over the next 12 months. He believes the S&P 500 will
top at its September 2012 high at 1,474 ($148 a share for SPDR
S&P 500SPY) and then correct by 20%.
"It seems clear that central banks around the world will
continue to keep interest rates down and monetize government
debts," Faber wrote. "Therefore in real terms (inflation
adjusted), interest rates will remain negative for a long time
and continue to erode paper money's purchasing power."
Market Vectors Gold Miners ETF (
) jumped 2.12% to 45.30. It's consolidating below both its 50-
and 200-day moving average, indicating a strong downtrend.
Silver Prices Shine
Silver futures prices climbed 1.78% to $31 an ounce.
IShares Silver Trust (
) surged 1.87% to 29.90 to barely recover its 200-day line, where
it's showing a weak uptrend.
Silver Miners ETF (
) added 1.76% to 22.51. It's trading above its 200-day but below
its 50-day, also showing a weak uptrend.
Dollar Down Vs. Euro
PowerShares DB U.S.
Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, gapped down 1.02% to 21.80. It's trading below both
its 50- and 200-day moving averages.
CurrencyShares Euro Trust (FXE), measuring the 17-nation
currency against the dollar, jumped 1.44% to 131.51.
As long as the Federal Reserve keeps the dollar printing
presses humming, the greenback will keep depreciating, says
Anthony W. Welch, a principal at Sarasota Capital Strategies in
Osprey, Fla., and co-manager of Currency Strategies Fund .
"More and more transactions are being settled in other
currencies for various reasons, yet the supply of dollars
continues to grow," he wrote in an email. "More supply and less
demand equals falling prices. That being said, it seems no one
wants an appreciating currency, and I believe the trends will be
more of a zig-zag shape than a straight line."
The ECB kept eurozone interest rates at 0.75%, where they have
been since July. Plumper yields boost investor appetite for bonds
denominated in the 17-nation currency. However, IHS Global
Insight's chief U.K. and European economist Howard Archer
believes the ECB will have to cut rates 0.5% in the second
quarter. Lower interest rates could lower investor appetite for
euros, depressing it against the dollar.
"Indeed, while eurozone economic activity may have seen its
low point around last October, we suspect that growth will remain
elusive and that already disturbingly high unemployment will
continue to rise," Archer wrote in a commentary. "This is likely
to put the ECB under increasing pressure to take interest rates
lower. Furthermore, we suspect that there will be periodic
flare-ups in eurozone sovereign debt tensions as Spain and Italy
continue to struggle markedly."
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