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AGE Gold Commentary is our regular report analyzing trends in precious metals and rare coins. We monitor domestic and international markets and extrapolate from our 30 years in metals to place current events into a hard asset perspective. View archives.


2/1/2001: Fed cuts rates again

Source:

Fed cuts rates again
Gold's positive response
British auction
Silver investments today
Platinum stalls

Gold has been range-bound for several weeks, trading between $262.50 to $268.00 per ounce. During the last few trading sessions, however, pressure has been towards the upper end of this range, as both the U.S. economy and dollar are showing increased signs of weakness. Today the spot gold price closed up $3.10, at $268.90.

Fed cuts rates again

Federal Reserve policy-makers yesterday cut their target lending rate by a half-point for the second time in a month, to 5.5 %, after economic reports showed U.S. growth slowed more than expected and consumer confidence dropped to a four-year low. Cuts of at least another three-quarters of a point are expected by July.

The slowing U.S. economy has created some weakness in the dollar, especially relative to the euro and the yen. Investors are viewing the Fed's actions as evidence of deeper-than-expected weakness, are beginning to look somewhat askance at U.S. investments.

"The statistics we've seen this week and the Fed's rate cut confirm that the U.S. has definitely got problems," said Charles Spence, director of foreign exchange sales at ING Baring (U.S.) Capital Markets. "Europe is looking a bit more attractive" to investors, which will boost the euro against the dollar, he said. (Bloomberg, 2/1/2001).

Gold's positive response

As we expected, gold appears to be reacting positively to recent changes in the currency markets. Priced internationally in U.S. dollars, gold becomes less expensive for foreign buyers when the dollar weakens, and increased foreign demand bids up the price.

In addition, there appears to be a fairly large net "short" position in the market. As gold rises in price, the shorts are being forced to buy back their future sales to lock in profits or to stop losses, so the gold price has firmed due to some short covering as well. With today's market up $3.10, closing at $268.90, optimism for further gains may be well placed at this time. If gold moves above $270 and holds, we anticipate additional short-term gains. If gold cannot hold these levels, it will most likely continue to be bound between $262.50 and $268.00.

British auction

In other gold news, Britain held another in their continuing series of highly publicized gold auctions on January 23, 2001. 800,000 ounces of gold were sold at a price of $268.00 per ounce, 90 cents over market at the time of sale. More importantly, the subscription factor for this auction was 4.8 times, meaning they had ready, willing and able buyers for almost 4 times the amount of gold they offered for sale. This subscription rate was the highest of the past five UK auctions, and the price was also higher than expected. We characterize this news as positive and mildly bullish for gold.

Silver investments today

We've been getting quite a few calls recently about silver. One of our competitors seems to be stirring up the market with a report indicating that silver could go as high as $100 per. While we feel this prediction is extremely optimistic, we nonetheless believe that silver under $5.00 per ounce is a very good value and a smart investment in today's climate.

We highly recommend the acquisition U.S. Peace Silver Dollars, minted from1921 to 1935, in brilliant uncirculated condition. These coins are unusually low in their 20-year price cycle right now and are an excellent buy for potential long-term gains. "Bankers Rolls" of 20 coins are priced at less than under $300 per roll - our lowest price in 10 years! In the mid-1980s, these rolls sold for close to three times today's price.

Platinum stalls

Platinum has finally stalled in its strong price run-up during the last 18 months. We anticipated that platinum over $550 would be very pricey, yet the market continued to surge as high as $625 in January. It's now trading right at the $600 range and has given back some of its recent gains. This market could easily move up or down $100 from here. We continue to believe that this market is overpriced by $100 - $200 per ounce, yet strong physical demand and weak physical supplies continue to hold this market near its current 20-year high.

That's it for now. As always, thanks for your time.

Sincerely,

Dana Samuelson, Owner and President
Dr. Bill Musgrave, Vice President

  

Metal Ask      Change
Gold $1,460.99           $-0.36
Silver $16.62           $-0.02
Platinum $897.96           $-2.59
Palladium $1,881.13           $-6.53
In US Dollars