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February Metals Market Update

Year to date gold has largely been in the green. Volatility in major stock indices continues to cast a cautionary light over the investment community. Weak "recovery" data along with the emerging market crisis are the chief culprits. Yesterday was a crucial trading day for gold as it finally managed a close above the $1270/oz technical resistance level. Today, recently confirmed Fed Chairwoman Janet Yellen testifies before congress about the Fed's role going forward. In her prepared statement, she mentioned no plans to alter the tapering schedule implemented by Bernanke, but, as per the usual vague language we've come to expect, it is all dependent upon the data and she just might change her mind.

Fundamental Analysis:
Regardless of what the financial wizard of oz says, it is the physical market that underpins all else. Taper or no taper, Gold seems to have been firming up at these price levels as strong physical buying continues to be the floor under the market. This correlates with gold's flirting with backwardation this month. Silver on the other hand looks to be trading with less conviction, taking its cues from gold. The gold/silver ratio has widened from 60.0 to about 64.0 today after hitting monthly high of 65.0.

Much talk has been made of gold trading inversely to the Dow or the S&P. Though, on a day like today, where both the Dow and Gold are up over 1% you have to ask, what gives? Here's my .001 oz (2 cents priced in silver) the dollar is getting weaker. Put simply, it is a terrible money. That is true whether priced in an oz of gold or in the Dow. To hear more about why, check out my article that was published in Peter Schiff's recent gold letter, and by our friends over at the Sound Money Institute.

For the record, gold is a much better barometer for the weakening dollar than the Dow.

Technical Analysis:
The techies for the precious metals have a lot to be excited about, especially in gold. Gold has broken through resistance at $1270/oz which had been tested and held over five times in the last 2 weeks. That was also its 100 day moving average. The next level is just around the corner at $1300/oz with the 200 DMA at $1309/oz. A level that has not been tested since September of last year. Today we are already trading up $15 guess, Yellen is unhappy with the jobs numbers and might change her mind?

It's not really technical analysis but it's worth noting; our trading desk reports that open interest is moving out of shorts and into more neutral to long positions as gold continues to catch bids. It looks like gold may be getting a dose of momentum.

Silver's near term resistance is at the $20.56/oz mark.

What to look for in the news:

  • The Emerging Market Crisis continues. Top 5 riskiest countries according to Morgan Stanley are: Brazil, India, Indonesia, Turkey and South Africa.
    • This is what happens on the fringe with countries who are dependent on the dollar food trough for growth. They are less insulated from the whims of Bernanke and his monetary shenanigans. Notable countries that did not make the list; Venezuela and Argentina maybe because it has happened there before? And often? Let's not forget mother Russia either who is facing a collapsing ruble in addition to unhappy Olympians.
  • There is another debt ceiling debate…for anyone who is still interested.
    • Is anyone still interested in that?

Enjoy the rest of your week and try to stay warm out there!