James Steel, India Demand and The Fed

This week precious metals did not show a strong indication of an upward or downward trend. Points lost in one trading day were quickly made up the next. Many believe gold and silver investors are in a wait-and-see mode for now. Here are a few events from this week that may put a stop to the back and forth.

Steel Optimistic on Gold

James Steel is a well-respected commodities analyst at HSBC. In an audio interview with Bloomberg he pointed out a few important points. Steel mentioned that there has been a lot of back and forth around the $1400.00 per ounce mark of gold due mostly to the talks around whether or not the Federal Reserve will continue its stimulus program.

If the Fed finally decides to taper off the quantitative easing program then gold may take a small hit. If news comes out otherwise then the market may see a temporary rise. Therefore, news such as last week’s job data report can cause a swing of $30.00 per ounce or more. Nonetheless, Steel mentioned that tapering off is very different than an exit from the stimulus program. The Fed may need to taper off for some time before an exit is reached.

Steel also mentioned that the large outflows of ETFs have slowed down significantly in the past week. Physical demand of coins and bars (especially from China) remain high and this may push gold up to the $1600.00 per ounce level by the end of the year.

Demand in India

For the time being, India’s demand is in a temporary lull. The festival and wedding season is over and won’t start again until August. India is the largest buyer of gold bullion and has seen a significant drop in the average demand of gold in latter half of May.

Federal Reserve Meeting Next Week

As stated above, any news about the Federal Reserve can change the price of gold overnight. Next week the Fed will meet with investors watching with eager eyes. One voting member suggested putting an end to the stimulus and Ben Bernanke was quoted saying, “tapering” of the stimulus could be possible in the next few meetings.

Final Thoughts

Next week will be an important one for gold. With the outflows of ETFs slowing down it may pave the way for physical demand to increase the price of gold regardless of a small lull in demand from India. Either way most investors will be watching the Fed closely on Tuesday and Wednesday before making any major portfolio decisions.

American Bullion specializes in adding gold or silver to 401(k)s or Individual Retirement Accounts. To learn more about your options or to speak with a precious metals specialist, call 1-800-326-9598.

References: Goldseek, Reuters, USAToday