Another week of small moves for gold and silver prices further extended the narrowing trading range for both precious metals as investors continue to wait patiently for word of new monetary policy action in Europe, the U.S., and/or China.
Reports of dramatically slowing growth in China on Thursday and Friday led many to think that a new round of stimulus there is likely to come first - as soon as this week - and, along with potentially imminent money printing in Europe, this will surely have a positive impact on metal prices. But, it is monetary policy action from the U.S. that will likely result in precious metals breaking decisively out of the trading range that has confined them for more than three months.
For the week, the gold price rose 1.1 percent, from $1,603.60 an ounce to $1,620.50, and silver rose 1.2 percent, from $27.80 an ounce to $28.13. Spot gold is now up 3.5 percent for the year, down 15.7 percent from its 2011 high, and silver is up 0.9 percent in 2012, down 43.2 percent from its peak last year.
What looked like a "breakout" for the gold price two weeks ago has proven to be nothing of the sort as the yellow metal remains trapped between an upper bound of $1,625 an ounce and a lower bound of $1,575 and silver has experienced a similar, narrowing trading range in recent weeks.
The $1,640 an ounce mark for gold (roughly $159 for the SPDR Gold Shares ETF (GLD)) is now almost universally considered to be the key price level for the metal to entice bullish traders back into the market, analysts at Barclays Capital recently noting that a break above this level is "required to confirm potential upside toward initial targets near $1700 and $1800″. Barclays maintained their average gold price forecasts of $1,665 an ounce for the current quarter and $1,672 for the year, implying sharply higher prices this fall.
Of course, in the broad scheme of things, the current weakness in precious metals will surely be looked back upon as just another in a long series of corrections that have played out during the secular bull market in gold and silver that began more than a decade ago.
Interestingly, as shown below, the current gold correction now lags even the one in 2008-2009, however, its trajectory would have it catching up in another month or so and any large-scale central bank action would hasten that process substantially.
Also, it's worth pointing out that, while not shown in the graphic, during the 2008-2009 correction, the gold price didn't reclaim its early-2008 high until October of 2009, almost 19 months later! I don't expect the ongoing consolidation to take that long this time around, but this should provide a new perspective on the current 12-month long correction for impatient investors.
As for silver, it too is in the upper portion of its recent trading range of between $27 and $29 an ounce, after having repeatedly probed the $28 level last week before closing above that mark for the first time in eight weeks.
I must say, I was a bit surprised after having written that last sentence - that spot silver hasn't closed above $28 an ounce since the middle of June!
On a related note, now would be a good time for owners of the iShares Silver Trust ETF (SLV) to give due consideration to swapping those share in favor of the Sprott Physical Silver Trust (PSLV) since the PSLV premium has shrunk to around 3 percent, down from around 30 percent at one point last year for this closed-end fund.
The idea here is that the premium is not likely to go much lower and, in the event that gold and silver prices take off in the period ahead, the premium could rise back into the double-digits, increasing the overall gain. It's been a long wait for silver investors - almost a year-and-a-half now since the spring 2011 highs - but, as soon as the gold price takes off again, spurred higher by more central bank money printing, silver will be sure to follow.
Lastly, word came via this Financial Times report a week ago that the Commodities Futures Trading Commission intends to close its four-year long investigation into silver market manipulation without filing any charges against the likes of JP Morgan who, for many years, has been suspected of exerting an undue (downward) influence on the metals' price. There is some very good reading on this subject in this Motley Fool article and in this commentary by Ted Butler.
Additional disclosure: I also own gold and silver coins and bars.