Precious Metals Under Pressure As Equity Markets Soar

Precious metals prices rose yesterday, but the breakout in Wall Street stocks to new highs and data showing an improving U.S. economy pressurized the precious metal’s safe-haven appeal. The Fed’s Beige Book showed a slow recovery but a positive recovery was underway with an improvement in most sectors. The slowing factor was the “fiscal cliff” and the new payroll tax increases and all the political rhetoric from Washington, held back consumers and businesses. With most of this behind the economy is expected to pick up its pace of recovery. The ADP release yesterday showed that the economy had generated over 198,000 new jobs against estimates of 170,000. This gave a bump to the US dollar and held gold down as the good news on one front can be bad news for central bank speculators as it might push the central bank to lower or terminate its monetary stimulus program. This helped support the US dollar and kept gold on the weak side. Gold is holding at 1580.50 this morning adding a few dollars as traders take advantage of the weak price ahead of central bank decisions today.

Global central bankers are meeting today in Japan, England and Brussels and more stimulus or lower interest rates are expected. This afternoon’s press conference by Mario Draghi is expected to have major market effects.

Holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange traded fund, stood at 1244.86 tons by Mar 06, remains unchanged from the previous business day. While holdings in the world’s largest silver backed exchange-traded fund iShares Silver Trust stood at 10646.48 tons by Mar 06, remains unchanged from the previous business day.

Gold importers in India feared volatility in the rupee against the strong US dollar which plays an important role in determining the landed cost of the dollar denominated bullion, seeking bigger falls in the yellow metal from their lowest level in nearly a week. Gold speculators are staying out of the market until the US dollar eases. The US dollar has been strong since last week when the “sequestered” budget cuts were left in place, as traders moved to the safety of the greenback.

Positive U.S. economic data dented bullion’s safe-haven appeal. Automatic spending cuts that kicked off in the United States on Friday, pushing spot gold to its lowest level in more than a week, also continued to weigh. Recent weakness in the global market has triggered physical buying interest in Asia, particularly in China, as the spread between onshore prices and international prices widens, cushioning the fall in dollar-priced gold. The overall improving outlook for the global economy has boosted risk appetite and pulled investors to higher-yielding assets such as equities.

Traders will closely watch the central bank action today along with US unemployment numbers ahead of tomorrow’s nonfarm payroll release.

Equities seem to be the biggest beneficiary of the inflow of funds as traders remain in a positive mood. The Dow Jones, NASDAQ index and the S&P 500 ended in green. The Dow was up by 0.30% and closed at 14296; S&P 500 was gained by 0.11% at 1541. European indices ended mixed. The FTSE was down by 0.07%, the DAX gained by 0.62% and the CAC 40 was down by 0.35%.This morning major stock markets in Asia are trading mixed. Shanghai Composite is down by 0.61% at 2333 and Hang Seng is up by 0.03% at 22784. Japan’s Nikkei is up by 0.60% at 12004 and Singapore’s Straits Times up by 0.03% at 3293. As long as traders stay in equities there is little chance for gold or silver to climb. Although with precious metals flat, industrial metals have been gaining on positive recovery tones giving silver additional momentum as it is pressing for the 29.00 mark this morning trading at 28.92