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Precious Metals Review

Market information and news is critical for precious metal investing. However, many investors have limited time to sort through the massive amounts of market data and gold, silver and platinum news. The Monex Precious Metals Review consolidates the week's activities in a concise snapshot of the precious metal markets.

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PRECIOUS METALS REVIEW - MAY 27, 2016

In the precious metals markets this week . . .  

GOLD:
Monex spot gold prices opened the week at $1,249 . . . traded as high as $1,252 on Monday and as low as $1,207 on Friday . . . and the Monex AM settlement price on Friday was $1,214, down $38 for the week.  Gold support is now anticipated at $1,206, then $1,180, and then $1,155 . . . with resistance anticipated at $1,228, then $1,255, and then $1,274.

SILVER:
Monex spot silver prices opened the week at $16.39 . . . traded as high as $16.58 on Thursday and as low as $16.15 on Friday . . . and the Monex AM settlement price on Friday was $16.27, down $.07 for the week.  Silver support is now anticipated at $16.05, then $15.80, and then $15.63 . . . and resistance anticipated at $16.42, then $16.80, and then $17.27.

PLATINUM:
Monex spot platinum prices opened the week at $1,015 . . . traded as high as $1,016 on Monday and as low as $980 on Friday . . . and the Monex AM settlement price on Friday was $983, down $27 for the week.  Platinum support is now anticipated at $952, then $915, and then $885 . . . and resistance anticipated at $985, then $1,011, and then $1,045.

PALLADIUM:
Monex spot palladium prices opened the week at $551 . . . traded as high as $554 on Monday and as low as $523 on Wednesday . . . and the Monex AM settlement price on Friday was $538, down $21 for the week.  Palladium support is now anticipated at $521, then $485, and then $468 . . . and resistance anticipated at $555, then $588, and then $621.

QUOTES OF THE WEEK:

From Kostav Samanta, posting in the ''Currencies'' section of Reuters online:

''Gold slipped to its lowest in eight weeks on Friday, and was on track for its biggest weekly decline in nine, as expectations of a U.S. interest rate hike in two months on positive economic data hurt investor appetite.    

The safe-haven asset was also weighed down by Asian stocks that drifted upwards on Friday and as the dollar index, which measures the greenback against a basket of six major currencies, held steady.  

Spot gold was up 0.1 percent at $1,221.45 an ounce by 0624 GMT, after falling as low as $1,211.30 earlier in the session, the lowest since April 1. The metal has dropped about 2.5 percent so far this week, heading towards its biggest weekly decline since March 25.     U.S. gold was nearly flat at $1,221.

Bullion has been under pressure since the prospect of an imminent rate hike was indicated by U.S. Federal Reserve meeting minutes released last week and has been consistently supported by key central bank officials. An increase in rates would raise the opportunity cost of holding gold.

'Gold is not an interest-bearing asset so that is the reason a majority (traders) might want to wait on the sidelines, or, even move out of gold at the moment,' said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central. 'Some traders might just exit the market for now and see where it goes before they come back in.'

Fed Governor Jerome Powell, a voting member of the U.S. central bank's rate-setting committee, on Thursday said he felt the economy was on a 'solid footing' and within reach of the Fed's inflation goals.

Meanwhile, the Atlanta Fed on Thursday predicted the country's economy is on track to grow by a 2.9 percent annualized rate in the second quarter, following the latest data on durable goods orders and advance goods trade.
 
The gold market is awaiting further direction from Fed Chair Janet Yellen's comments at a panel event hosted by Harvard University on Friday. 'If she (Yellen) nudges expectations towards a rate increase, the futures fund curve should start to show a higher probability of an imminent move,' said INTL FCStone analyst Edward Meir. 'At this point, the dollar could start to stabilize and perhaps weaken given that a rate hike would now be mostly
discounted.'

Among other precious metals, spot silver touched its lowest since April 18, hitting a low of $16.12. Spot platinum marked its weakest in over a month and was on track for its biggest weekly decline since Jan 15.''    

 
. . . and from Jared Blikre, in a Yahoo Finance web posting on May 27th:

''The Federal Reserve's $4.3 trillion ticking time bomb

Quantitative easing was a Faustian bargain.

The Federal Reserve has a big problem if it wants to raise rates again. It will have to pay U.S. and foreign banks enormous sums of money instead of U.S. taxpayers.
Not only would the Fed likely draw the ire of Congress, but it could also become a target of the next U.S. president-be it Clinton or Trump. That's because the gangbuster profits of $90 billion (plus) per year that the Fed remits to the Treasury could easily dwindle to zero. According to several leading economists, it's also possible that the Fed will become technically insolvent (though it always has the power to print its way out of such a disastrous state).

Quantitative easing was a Faustian bargain
The putative savior of the financial crisis, quantitative easing, was a Faustian bargain. The Fed got to inject trillions of dollars into the financial sector while simultaneously 'sterilizing' the very same money. It did this by incentivizing banks to deposit their digital cash at the Fed, paying above-market interest rates.

Currently, the Fed pays 0.50% annually to banks to keep that money out of the economy. It might not seem like much, but the comparable rate paid by the U.S. Treasury for T-bills is 0.28%. In other words, the Fed pays banks nearly twice as much as the Treasury does.
But the Fed refuses to acknowledge this. Each year, the Fed Chair is required by law to testify twice in front of Congress. Both Ben Bernanke and Janet Yellen have used the word, 'comparable,' to assert disingenuously that the Fed is paying an amount of interest similar to what banks could earn in the marketplace. It's possible to 'compare' apples to oranges, but it doesn't mean they're similar.

Currently, the Fed is paying banks about $12 billion per year in interest. If the Fed raises rates two times (by 0.25% each time) and the level of reserves stays the same, that number doubles to $24 billion. If we are to believe San Francisco Fed President John Williams, who targets an eventual 3.0% for short-term rates, then that's $72 billion per year to the banks. This is a huge expenses for the Fed. Subtract from that the $90 billion (plus) per year in operating profits, and the amount of money the Fed pays to the Treasury gets pretty small.

The Fed is poised to take huge capital losses

But it gets worse. The Fed is taking capital losses on its $4.3 trillion bond portfolio, and those losses will eventually accelerate. When the bonds that the Fed holds mature, it realizes losses because it paid above-market prices for most of them to begin with.
The Fed is currently keeping its balance sheet the same size, purchasing new bonds when old ones mature. Should it decide to sell bonds, it would realize huge losses over a short space of time and would likely go into debt with the U.S. Treasury. According to Hall and Reis, it would take the Fed 6 to 10 years to work off the debt and get back in the green.
Bottom line: No matter how you slice it, the Fed payments to Uncle Sam will not only drop off a cliff someday, they could also go negative. That means, the taxpayers would be indirectly on the hook for Federal Reserve operating losses.

The crisis comes when Congress realizes the Fed is paying the government nothing (or next to nothing) while shelling out billions to the banks. Several members of Congress have already been critical of Fed payments to banks, but they've largely missed the mark. When the next budget crisis arises without the Fed paying it's perceived 'fair share' all it would take is a few impassioned speeches to stir the masses and make monetary policy a de facto political animal.

The worst possible outcome would be for a fickle and indecisive Congress to assert its authority over monetary policy. Unfortunately, by waiting seven years to raise rates-and into an economy growing at best modestly-the Fed has backed itself into a corner. The Fed has clearly chosen the banks over the best interests of the taxpayers, and this will eventually come back to bite Chair Yellen.''

Last update: May 27, 2016 02:26:45 PM

This is not a recommendation to buy or sell.