Somewhat unexpectedly, all of the precious metals rallied in earnest on Friday morning, helping to erase losses over the past 2 weeks. The COMEX paper markets actually contributed to the rally after traders were forced to cover their shorts as prices began to rise. By 10 am ET, gold sat $17 higher (+1.6%) at $1,078.50/oz, nearing its next resistance level of $1,080.
Update: By 10:30 am ET, gold was up $24 per ounce to $1,085/oz.
Silver also surged through resistance, adding more than 2.6% to clear the $14.50/oz hurdle. Platinum was 3.2% higher to $877/oz while palladium also gained 2.6% to $555/oz.
The precious metals also made positive movement on Thursday against what the markets would typically expect. Most currency traders thought the dollar would rise on the unsurprising news that the ECB was planning further easing measures to boost the eurozone economy. This, however, didn't materialize. Traders in Europe largely "bought the rumor, sold the fact" by pushing the euro a whopping 3.3% higher even when the opposite made more sense. It was the largest single-day advance for the currency since 2009. So, rather the dollar rising (and hurting gold), the USD fell. This helped gold at better than $8 to cross back above $1,060/oz.
As the precious metals rose for a second straight day on Friday, the short squeeze was on in full force.
Solid Physical Demand
The pricing in of the expected December Fed rate hike has everything to do with this overshooting on the COMEX markets. Even as it seemed like the bond markets and U.S. asset prices generally had adjusted accordingly to the all-but-certain rate increase, overzealous selling on the paper markets continued to push the metals lower. Friday's snap-back rally, which bled over from Thursday, seems to indicate that speculators misjudged this "pricing in" effect in regard to the precious metals.
The idea that the paper markets overshot on the metals is supported by the one-way direction of economic data: it's all been strongly in support of a rate hike at the moment. On Friday, the nonfarm payrolls came in above expectations at 211,000 new jobs added. Unemployment held at 5.0%, and the labor participation rate ticked 0.1% higher to 62.5%. This jobs report is the last big data point before the FOMC meeting on December 16th, meaning it would seem to take an unforeseen calamity for the Fed not to raise rates.
Meantime, both the stock and bond markets got hammered in the U.S., which may reflect expectations that the time of zero interest rate policy (ZIRP) is coming to an end, cutting off the easy flow of money. Thursday was the worst for the U.S. stock market in 2 months, while the Treasury market was likewise hammered.
Wherever today's rally peters out, expect the metals to trade in a tighter range as the free market finds the right "priced in" level that takes a rate hike into account.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.