Gold & Silver Report 16 Feb 2015

Gold and silver continued into decline this week over expectations of US interest rate rises and also due to some better-than-expected economic  data from Germany. However a weaker dollar and uncertainty over Greece enabled the metal to see some end-week gains and hold above a five-week low.

Price and charts snapshot:

Table source: Bloomberg (circa 6AM AEST)

Charts source: NASDAQ

On Monday, gold and silver edged higher after Asian equity markets fell due to disappointing Chinese economic data, but overall failed to make much headway from previous low in the prior session due to anticipation of US interest rate rises^[1]. On Tuesday, Gold extended some gains as worries over Greece’s future in the Eurozone, supplemented by a decline in global equities, supported the safe-haven metal^[2]. Nonetheless by Wednesday Gold had struggled to recover from overnight losses as a stronger dollar offset safe-haven bids^[3]. The metals edged higher on Thursday, recovering from the earlier five-week low, as confusion arose over Greece’s debt negotiations with its European lenders, attracting new safe-haven bids for the metals^[4]. On Friday, Gold pared its gains after rising 1%, as the US dollar steadied following weaker than expected US economic data.

This week seems to have seen mixed influences on the commodities market. A ceasefire between Russian separatists and Ukrainian forces caused major US and European markets to rally to record highs, pressuring gold. However the probability of Greece leaving the Eurozone has risen recently as new Prime Minister Alexis Tsipras shows an increasingly hard line over government debt. According to Jason Cerisola of MKS Group, with these ongoing concerns surrounding Greece and speculation of potential for default, as well as the Ukraine crisis, gold could find support and “hold above the 55-day moving average at USD$1,225 (AUD$1576.07) and 100 day moving average at USD$1,217 (AUD$1565.78) in the near term”^[5].

Meanwhile, despite a current pause in the US dollar’s long-term rally, the outlook generally remains upbeat with many investors continuing to expect an interest rate hike by the Federal Reserve this year. Precious metals prices also declined as Stock markets worldwide rose on stronger-than-expected German economic growth data and optimism that Greece could reach a deal with its creditors, while oil prices gained on signs that excess supply may ebb. Finally, Sweden’s Riksbank unexpectedly cut its key rate into negative territory and announced it would soon buy bonds worth 10 billion Swedish crowns, prompting safe-haven buying.

However, uncertainty over when the interest rate will happen, and the situation in Greece, has restrained movements. For example ING Bank senior strategist Hamza Khan said “We are in a holding pattern between $1,150 and $1,300 because there isn’t enough clarity around when the Fed is going to be hiking interest rates and what is going to be happening with Greece”^[6].

Author Lisa Casagrande | https://www.goldbullionaustralia.com.au