Gold and silver posted some decent gains yesterday and are on their way to doing the same early today. In the early parts of Friday gold is already up slightly while silver is hovering around even. Physical buying in conjunction with portfolio rebalancing are the two main reasons we have seen precious metals make gains in the early running of 2014.
While yesterday and today have been positive for precious metals thus far, the larger 2014 picture may not be so accommodating.
Physical Buying, Rebalancing Helping Precious Metals
Now that 2013 is finished, investors are turning their attention to their long-term investing goals for this new year. US stocks have calmed down significantly from their 3-week bullish run that we witnessed at the end of the year and thus investors are quickly losing their interest in US equities. Most investors have opted to cash in on gains made during the US stock markets’ bullish runs and then allocate those gains into other assets, including precious metals.
The reduced spot values currently exhibited by both gold and silver are drawing attention from investors who feel as though metals have nowhere to go but up. Not only that, but investors are more or less hitting the reset button on their portfolios. What I mean by this is that a week or so ago, investors may have had a significant investment in stocks while only having a minor investment in precious metals. Now, because the year has turned over, investors are rebalancing their portfolios and pursuing a more even ratio of commodities and equities. Increased physical buying across the world is also a factor playing into precious metals’ early gains this year. What will be interesting to see is whether or not gold and silver will be able to turn these first two days’ gains into extended runs or whether profit-taking will drive gold and silver spot values right back down.
As we look ahead, the geopolitical atmosphere in the United States is beginning to make its way back into the spotlight. The reason for this is that the debt ceiling, or borrowing limit is scheduled to be reached in early February. If you can remember back to last October, during the government shutdown, the two issues at hand were both the annual budget and the debt ceiling being reached. Though the budget for this year was finalized and approved only a few weeks ago, the deadline for the temporary debt ceiling deal achieved back in October is set to be reached in the early running of February. If US lawmakers cannot come together and reach an agreement with regard to the US’ borrowing by the end of this month, the US will be forced to stop borrowing money and will essentially be stopped in its tracks. While February is still a long way away, the debt ceiling is not something investors or lawmakers can push off until the last week of January. Regardless of how this situation is handled over the next few weeks, investors will want to keep a close eye on all developments as they will undoubtedly have some sort of impact on the US and worldwide marketplaces.