December 10th Midweek Gold Market Update

Despite the fact that there isn’t all that much in the way of markets-moving economic data on the slate this week, gold and silver spot values have fared well thus far. In fact, since Monday, gold has eclipsed the $1,200/ounce threshold while silver has poked its head back up above $17 for the first time in well over a month. After consecutive gains occurred on both Monday and Tuesday, the prevailing belief was that today, Wednesday, would bring about a technical correction or perhaps some profit-taking. Fortunately, as of the writing of this post during the mid-morning hours, spot values are holding steady, with gold down by only a dollar and silver down by a penny or two.

Looking ahead to the final few days of the week, investors the world over will be keen to find out whether gold and silver can continue to do so well despite economic conditions that would make most people think gains would be impossible. Out of all the factors weighing metals down, crude oil has to be the strongest. Still, despite the weight it is adding to the raw commodity sector, gold and silver are doing just fine.

Crude Oil Worries Continue

A theme in the marketplace over the past few weeks has been the recent slump crude oil has fallen victim to. Crude oil prices have been declining and though the market has reacted accordingly, most people thought that the decline would be nothing more than temporary.

Now, we come to find out that perhaps lower crude oil prices are here to stay. A report made public this week indicated that an increase in American-extracted crude oil is causing a supply glut big enough that it is responsible for recently falling prices. In addition to a larger supply of oil driving prices downward, the absence of a so-called “war premium” is helping keep prices subdued.

A “war premium”, for those who may be unaware, is an additional 10%-25% added to the cost of crude oil that is extracted from parts of the world where large, ongoing wars are a problem (ie the Middle East). Because more and more oil is coming from the relatively calm United States, prices are being adjusted accordingly.

Though up to this point, crude oil’s decline has weighed on gold and silver, this week has shown that perhaps precious metals are able to resist oil’s downward pull. With the global economic outlook beginning to deteriorate, I would not be at all surprised to see safe-haven demand continue to drive spot values forward. In addition to safe-haven demand, the fact that gold and silver prices have been beaten down so far will also bring out the bargain-hunters.

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