Gold market report: Gold and Silver Prices Move Sideways

Nov 1, 2013·Alasdair Macleod

The event of the week was the FOMC meeting on Wednesday, which actually said nothing of any substance. This was hardly surprising, given the impending change of chairmanship; however it triggered a rally in the US dollar as dollar bears rushed to close, and gold fell $20 from $1355 to $1335 in less than half an hour.

The price continued to drift lower yesterday (Thursday) closing at $1323. The consensus now appears to expect tapering following the March FOMC meeting. However, for that to happen, the economy will have to recover, unemployment will have to fall and the Fed will have to revise its forward guidance on interest rates. Therefore, those that expect tapering must be reflecting optimism about economic prospects.

For the moment, gold appears to be capped at $1360, having failed to break through that level three times this week. However, gold has had a good run of $90 from $1252, so some consolidation makes sense. Silver must overcome supply at $23.10. Once these levels are broken there will be a good chance of a bear squeeze, forcing the shorts to close, and the bulls on the side-lines will worry about missing the rise.
Charts of the daily close for gold and silver are shown below.

There was little in the way of solid news this week, with gold being on the other side of the dollar trade: when high frequency traders and hedge funds see the dollar rallying, they sell gold, and vice-versa. The problem with this sort of trading is that it is essentially mechanistic, losing sight of deeper considerations of relative value. This is why new factors, even though they may not be very significant in themselves, can have a disproportionate effect on prices. It also explains why traders in the paper markets can ignore fundamental developments, such as the overwhelming demand for physical gold from China and Asia generally, for extended periods of time.

Besides the independent direction of paper gold and silver markets relative to bullion demand, loose thinking over the tapering issue needs to be resolved. Expect commentators in the coming weeks to address the inconsistency between expectations over tapering and the Fed's longer-term commitments to low interest rates. This has to be put in the context of the economic outlook, which for the Fed's FOMC is still far from clear.

Next week
The following announcements are scheduled for next week:


UK: Halifax House Price Index,
Eurozone: Manufacturing PMI. 
US: Factory Orders, Quarterly Borrowing Estimates (US Treasury),


Eurozone: PPI.
US: IBD Consumer Optimism Index, ISM Non-Manufacturing Index.

Eurozone: Composite PMI, Services PMI, Retail Trade
UK: Industrial Production, Manufacturing Production.
US: Leading Indicator.


Japan: Leading Indicator.
UK: BoE Monetary Policy Announcement, Base Rate.
Eurozone: ECB Interest Rate.
US: Core PCE Price Index, GDP, GDP Price Index, Initial Claims, Consumer Credit.


UK: Trade Balance (non-EU), Visible Trade Balance (World).
US: Non-Farm Payrolls, Personal Income, Personal Spending, Unemployment.