Precious metals prices moderated last week for the first time since mid-August as open interest in gold futures rose to a one-year high, large amounts of bullion were added to precious metal ETFs, and more positive technical factors emerged, attracting traders to a market that suddenly came to life in the waning days of summer. But, the big news for gold and silver was word that yet another central bank launched another round of money printing, this time the Bank of Japan.
For the week, the gold price rose 0.1 percent, from $1,770.50 an ounce to $1,773.00, and silver dipped 0.5 percent, from $34.68 an ounce to $34.52. Spot gold is now up 13.2 percent for the year, down 7.8 percent from its 2011 high, and silver is up 23.9 percent in 2012, down 30.3 percent from its peak last year.
It's been a stunning advance over the course of the last month, during which time the gold price rose from around $1,600 an ounce to nearly $1,800, a move of more than 11 percent, while the silver price surged from below $28 an ounce to over $35, a jump of more than 25 percent. Both metals seem overdue for a little breather, one that other commodities began in earnest last week with broad equity markets perhaps set to follow.
As shown below via StockCharts, the recent surge in the gold price has resulted in the formation of a very bullish indicator - a "golden cross" - that occurs when the 50-day MA (moving average) moves above the 200-day MA. This ends a five-month period that began back in April when the 50-day MA was below the 200-day MA, during which time the gold price fell and then languished over much of the summer.
A "golden cross" last occurred in February of 2009 and this led to further gains in the trading that followed, this latest development being just one more in a series of bullish indicators that have emerged over the last month.
Hedge funds have certainly taken notice of the rising gold price as they've pushed futures market open interest - total long and short gold futures contracts - to a one-year high of nearly 500,000 lots, up more than 25 percent over the last month.
It's worth remembering that the gold price is set in the futures markets, so, you don't get higher metal prices without the participation of hedge funds and, after basically taking the entire spring and summer off, they have returned in a very big way.
But, the most important recent development for precious metals last week was the announcement by the Bank of Japan that they will add another $125+ billion to their ongoing stimulus program that now totals an even $1 trillion and this sent gold futures to a 29-week high on Wednesday. This follows similar announcements from the U.S. and Europe in recent weeks as more and more investors are now simply buying gold and silver when they hear of new central bank actions to spur the economy, all of which seem to involve creating billions of dollars in new paper money to buy assets of some kind.
More retail buying of gold and silver was clear to see in the bullion holdings of both the SPDR Gold Shares ETF (GLD) and the iShares Silver Trust (SLV) that have risen sharply in recent weeks, the former now up to 1,318 tonnes, just 2 tonnes shy of the record high set back in June of 2010, with that mark likely be eclipsed in a matter of days given that the inventory has been growing at a rate of more than 10 tonnes per week since mid-August.
As for silver, at just under 10,000 tonnes, the SLV ETF holdings are still almost 1,500 tonnes back of where they were when silver mania most recently took hold 18 months ago, however, there has been a steady increase in recent weeks, some 172 tonnes being added just last week with more likely to come.
As I've been telling subscribers at Iacono Research for the last week, precious metals are due for a correction, and last week's tiny advance for gold and the modest pull-back for silver could have been the start of one if not for another central bank announcing another round of money printing and this largely explains why the monetary metals were steady as most other commodity prices tumbled.
But, absent another central bank announcement, I wouldn't be surprised to see the modest correction that was getting underway early last week - as the gold price tumbled to $1,755 an ounce and silver moved below $34 an ounce - resume in the days ahead, what would be a small, healthy retracement in advance of a much bigger move higher in the months ahead.
Additional disclosure: I also own gold and silver coins and bars