Global Factors Boost Gold and Silver Demand

After having a strong week, gold and silver prices are pulling back today, as several developments weigh on the markets.  JP Morgan provided a wake up call to rallying financials as the company reported a miss on fourth quarter earnings.  For the second time in only two days, Bank of America cut its fourth quarter GDP estimate from 3.5 percent to 2.7 percent.  Furthermore, the U.S. dollar continues to show strength as Standard & Poor’s downgrades France.

Shortly after euro zone sources said several countries may face imminent downgrade by S&P, Reuters reported that France’s credit rating will be downgraded.  The ratings agency warned in December that it may downgrade several euro zone nations if European leaders failed to enact a credible solution to the financial crisis.  After the downgrade, the U.S. dollar index climbed to 81.75, the highest level it has been since 2010.  There’s a “sharp rally in U.S. dollar index due to increased worry of weakness in euro,” said Darin Newsom, senior analyst at Telvent DTN.  Gold declined $15 to $1,632, while silver declined 40 cents to $29.75.

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Although gold and silver prices pullback at times, the demand continues to remain strong for both precious metals.  China’s gold imports from Hong Kong reached a record high in November.  Earlier this week, the Hong Kong government reported that Mainland China purchased 102,779 kilograms of gold from Hong Kong, which represents a 20 percent increase from October and an all-time high.  While the price decline in gold had the media claiming bubble here in the U.S., China was busy buying the dip.  There is also strong demand for silver.  According to the latest data from the U.S. Mint …

silver eagle sales have already hit almost 4.6 million in January.  There was only one month last year that had a greater sales amount, and we still have more than two weeks left in the current month.

While Europe continues to deteriorate, there is increasing chatter about whether or not the Federal Reserve will take even more action to boost the U.S. economy.  San Francisco Fed President John Williams recently said that the high employment levels “make an argument that we should have more stimulus.”  Although the Fed is experimenting with a new communications strategy, it will not replace the calls for more easing.  According to the just released primary dealer survey from the Fed, top Wall Street fixed income dealers place a 60 percent probability on the Fed expanding its massive balance sheet within a year.

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To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com