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Demand for Physical Gold Remains Strong

Release Date: 
Friday, April 5, 2013

Gold and Silver Prices:

Gold and silver recovered their luster on the last trading day of the week, although prices ended lower on the New York Spot Market for the week. Gold and silver were buoyed by weak employment numbers: analysts projected the economy would add 200,000 new jobs. Instead, the economy only added 88,000 new jobs. “It was a disappointing number... it kind of takes the wind out of people who are talking about the end of QE,” a senior market strategist with Kingsview Financial told the Wall Street Journal. (“Gold Jumps on Weak Payrolls Report,’ WSJ, 4/5/13.)

Gold ended the week at $1,583.30, down $14.20. Silver closed at $27.45, down $4.01 for the week.

Demand for Physical Gold Remains Strong:

Investors continue to acquire physical gold, often taking advantage of the market dips. The managing director of GoldSilver Central Pte Ltd. told Reuters, “[w]e see physical buying by the retail investors during price dips and this helped to support prices, which should go up above$1,600. If everything goes well, it seems like gold could move on to a higher trading range. Gold should test $1,620." (“Gold rises on China PMI data; flirts with $1,600,” Reuters, 4/1/13.)

MarketWatch reported that “[p]hysical buying remains strong…’demand for the metals in the physical form is there — as highlighted by reports that Turkey’s imports of silver surged more than 30% and that of gold climbed to an eight-month high in March’….” (“Gold drops to lowest settlement since June,” MarketWatch, 4/3/13.)

European Economy Remains Moribund; Further Bailouts Possible:

Italy's economy, the third largest in the euro zone, is expected to contract by 1.5-1.6 percent, more than the government forecast just two weeks ago. Italy is experiencing its longer recession in 20 years. (“Italy sovereign spread rise hurts firms fast - IMF working paper,” Reuters, 4/3/13.)

The Portuguese President called on the constitutional court to rule whether the austerity budget is legal. If the court strikes down the budget, Portugal’s progress toward hitting its fiscal targets would be “derailed,” potentially causing the government to collapse. (“More Risk From Portugal,” Bloomberg, 4/2/13.)

North Korea Threatens War

North Korea announced it would restart its nuclear reactor to provide plutonium for its weapons program. "I have to say this is one of the most dangerous moments since 1953 [the end of the Korean War]," a professor of international relations at Beijing’s Renmin University explained to the Los Angeles Times. (“North Korea analyst: 'One of the most dangerous moments',” Los Angeles Times, 4/2/13.)

Later in the week, the rogue nation deployed missile and launch components which could threaten South Korea, Japan and Southeast Asia. (Amid Pyongyang bluster, missile launch feared,” CNN, 4/4/13.)

"If tensions on the Korean peninsula remain high we expect gold to benefit more than in previous periods of tensions, due to enhanced geopolitical uncertainty," HSBC said in a note. (“Gold holds near $1,600 as euro zone data lifts stocks,” The Economic Times, 4/2/13.)

Stockton, CA Declares Bankruptcy – Municipal Pensions at Risk

The City of Stockton, California, became the most populous city to declare bankruptcy. The city owes the California Public Employees Retirement System approximately $900 million in pension obligations, its largest debt.

If the bankruptcy court permits Stockton to avoid its pension obligations, the effects could be felt across the nation as other municipalities seek bankruptcy protection. (“Pension issue looms over Stockton, Calif., bankruptcy as state and nation watch,” The Washington Post, 4/2/13.)

Analyst Commentary:

Thomson Reuters GFMS updated its gold survey, stating “gold to average an all-time high over the first half of 2013…. of well into the $1,800s (per ounce) … [t]he environment for gold investment remains very positive into 2013.” In summarizing the survey, Phillip Klapwijk, Global Head of Metals Analytics at Thomson Reuters GMFS, said “many of the factors that have underpinned gold’s bull run to-date remain in place and will return to the fore this year….  Although there is now growing speculation around the structure and longevity of the Fed’s QE programme, policies of ultra-low interest rates across the western economies will persist in 2013.  This will continue to support investor interest in gold in the absence of low risk investments that can offer acceptable yields.” (Gold prices to peak in 2013: GFMS survey,” Mining.com, 4/4/13.)

Bank of America Merrill Lynch adjusted its forecast for the remainder of 2013, stating gold will average $1,670 an ounce this year. This represents a 4% increase from current prices. (“Bullish Bets Rebound at Fastest Pace in Four Years: Commodities,” Bloomberg, 4/1/13.)

Goldline provides a wrap-up of the week's precious metals news along with important commentary on the American Advisor Week in Review audio program. Click here to listen.

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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