Gold and silver ETFs have hit four-month highs and broken above their 200-day moving averages. Follow-through buying after the release of the latest Federal Reserve minutes saw gold and silver extend the rally that began on signs of greater European solidarity.
Gold reached US$1675, a 4-month high, and a 4% gain for the week. Silver jumped 9% last week, above $30/oz. for the first time since early May. [Silver Rally Faces Key Test]
There were several members of the Federal Reserve Board who indicated the need for additional stimulus, and that is likely to mean some form of quantitative easing, so called QE3.
The Eurozone’s dynamics appear to be shifting toward a more collaborative approach, as evidenced by Germany’s nascent indications of support for a potential fresh bond buying program from the ECB.
Meanwhile, gold, and other precious metals, like silver, rallied on the back of rising speculation that German officials are becoming more supportive of additional European Central Bank’s stimulus activities, which could help lower borrowing costs for debt burdened Eurozone nations. [Gold ETF Sees Big Weekly Inflow]
A key test of the support for a more coordinated approach for Europe is the German parliament’s vote on legality of ESM in mid-September. However, recent comments regarding the need for country’s to adhere strictly to austerity commitments indicates that there is a wide margin between rhetoric and concrete actions.
Key events to watch this week: Actions speak louder than words
The fallout from this week’s Eurozone talks will likely take center stage, with investors focusing on whether the rhetoric will be followed with decisive, coordinated actions.
On the economic front, the health of the German economy will be in focus, with the IFO business climate survey and retail sales numbers giving clarity on the magnitude of the slowdown in the ‘core’ of the Eurozone.
Last month’s IFO reading was the lowest in two months, so expectations of further weakness are likely to be greeted by a reduction in risk appetite for Eurozone assets.
Manufacturing data later in the week from the US will also be closely monitored to gauge when further stimulus may be introduced by the Fed.
ETFS Physical Silver Shares (NYSEArca: SIVR)