Monday, November 25, 2013

Heraeus Weekly Report

Gold Market

Against expectation there were significant impulses last week that sent gold into a downward spin: on Wednesday the metal lost 2.5%. And as has been the case in the past months, it was the debate around the Quantitative Easing Programme in the USA that was the cause. Gold appears to have become a slave to the contradictory statements being made in this connection. Being strongly linked to the Tapering issue has been damaging to gold and even though one would expect a more subdued reaction when things get repetitive, this is clearly not the case. And thus the focus remains on these discussions.

The gold production increase in Q3, as mentioned last week, was again mirrored in the estimate of Thomson Reuters GFMS for the full year 2013. The news agency expects a record result this year (2,920 tonnes vs. 2,861 tonnes in 2012). In view of the lower prices this may not appear plausible; however the various investments made in the past “success-decade” seem to be bearing fruit. As the average “all-in” production costs (ca. 1,200 $/oz) are now just below the present market level (1,230 $/oz), various mines are trying to improve their overall revenue through volume. Even though this may reduce production volume in the coming years, it appears to be more attractive than cutting production or, where possible, closing shafts. Although the costs for this are enormous, one naturally finds some examples.

The correction middle of last week (a 4-months low) led to a strong increase in demand for investment bars at our counters. Private investors appear to have considered prices below 1,250 $/oz as a good buy-opportunity and reacted consequently.

Since gold fell as low as 1,229 $/oz (29.35 €/g) this morning, it is now imperative to defend 1,200 $/oz. We consider it as very likely that this level will get tested. Technical support lies then at 1,180 $/oz and 1,150 $/oz.

Silver Market

As anticipated by us, the negative outlook was confirmed. The metal broke below the 20 $/oz mark during the course of last week and is now trading at a low last seen in early August. Since we fell below the 19.70 $/oz level this morning, the year’s low of 18.20 $/oz is now coming into focus. Given the present good employment figures, the break-below the 

20 $/oz mark as well as the hawkish (end of the bond-buying spree and / or interest-rate hikes) interpretation of the American FOMC Minutes, we also have a rather negative outlook for the metal. Furthermore, the stable investment-demand from small-investors cannot really support the price at the moment. 

Next week, among others, the US Consumer Confidence (Tuesday 16:00 hours), Employment data from Germany (Thursday 09:55 hours) and the European Consumer Confidence data (Thursday 11:00 hours) are awaited with much eagerness.