Gold & Silver Report 18 Jan 2014

Gold prices shot up $53.90 or 4.41% for the week as a whole, as market volatility post the Swiss National Bank’s policy decision boosted the metal’s safe-haven status^[1].

Price and charts snapshot:

Gold had a solid week, beginning positively as currencies and markets reacted to sliding oil prices. On Tuesday and Wednesday the metals maintained moderate gains as the World Bank cut its global growth forecast for 2015. However, on Thursday the gold price soared to a four-month high of USD$1,264.80 (AUD$1,538.97) while silver prices hit a four-week high, from the news that the Swiss National Bank scrapped a three-year-old cap on the franc^[2]. Precious metals continued gains as stock markets around the world continued to decline from the effects of Thursday’s news. Thanks to Thursday’s gains, gold prices ended the week up around 7% year to date.

The surprise decision by the Swiss National Bank was a major factor in global markets and gold price movements this week. e SNB’s abrupt move was unexpected. Days before SNB officials said the 1.20 francs per euro cap was at the foundation of the bank’s monetary policy.^[3]. Its decisions have given the impression that the SNB is losing confidence in the ECB’s monetary policy. Patrick Spencer at Robert W. Baird & Co noted “A lot of nervousness continues to create uncertainty and selling in the market.” and on the topic of the upcoming European Central Bank meeting next week, “You are going to need some quite significant [quantitative easing] from the ECB to stem the flood short term.”^[4]

As usual the US dollar is another factor; HSBC said: “…the possibility that further USD gains will negatively impact financial markets this year raises the possibility that investors will seek out gold as a safe haven^[5].

For the week ahead, Kitco News provided forecasts of a first resistance at Friday’s high of USD$1,270.30 (AUD$1,545.47) and then at USD$1,275.00 (AUD$1,551.19), with first support at the overnight low of USD$1,255.20 (AUD$1,526.73) and then at USD$1,250.00 (AUD$1,520.77). For Silver, the commodities news site pegged the first resistance at this week’s high of USD$17.24 (AUD$20.97) and then at USD$17.35 (AUD$21.11), with support at Friday’s low of USD$16.89 (AUD$20.55) and then at USD$16.50 (AUD$20.07)^[6].

Next week the US markets will be closed on Monday for the Martin Luther King Jr holiday. Traders and investors will be tracking news out of Frankfurt later in the week, with the European Central Bank due to announce its monetary policy decision on 22 January.