The Fed minutes for the March FMOC meeting raised expectations that the central bank might slow QE measures later this year, though no details have been released.
Gold prices were dampened because of the loss of safe haven status. Added to the selloff was news that
Cyprus would consider selling Gold to finance its bailout package.
Crude Oil weakened with investors concerned about the reduction in global Crude Oil demand as 2 out of 3 Oil agencies revised lower their forecasts.
Precious Metals
Gold fell Friday, benchmark Comex contract brushing below 1500 for the 1st time since mid Y 2011. Although the contract later recovered to 1501.4 at close, it ended the week -4.72%. The Fed’s hawkish comments reduced Gold’s safe-haven appeal.
The Fed FOMC minutes for the March indicated that policymakers discussed about reducing stimulus with the consensus supporting some tapering later this year. According to the minutes, many participants “expressed the view that continued solid improvement in the outlook for the labor market could prompt the Committee to slow the pace of purchases beginning at some point over the next several meetings”.
Meanwhile, “a range of views was expressed regarding the economic and labor market conditions that would call for an adjustment in the pace of purchases”.
Despite the debate, no compromise was made at the meeting.
Concerning the cost and benefit of the QE measures implemented so far, the efficacy study indicated that the result are positive. Policymakers “generally judged the macro-economic benefits of the current purchase program to outweigh the likely costs and risk”.
Another news sending Gold lower was a Reuters’ report that Cyprus considers Gold sale as an option to raise about EUR 400-M, representing 4% of the EUR 10-B package.
Government spokesman Christos Stylianides confirmed that “in its consultations on drafting the memorandum of understanding the Cypriot government included such options so we could have the possibility of meeting financing requirements”. Cyprus holds 13.9 tons of Gold worth of US$697-M. In order to raise EUR 400-M, the government might need to sell as much as 10.4 tons. This raised concerns that other debt-ridden countries might do the same to finance their loans.
Other Eurozone countries, Spain holds 281.6 tons of Gold, making up 29% of its reserves, Greece’s holding of 111.9 tons and Portugal’s 382.5 tons, takes up 82% and 90% of their reserves respectively.
Note: however that annual sales within the Eurozone are still capped by the CBGA at 400 tons, until September 2014. Sales for this year are below 4 tons, well below the allowance.
Crude Oil
The front-end of the Brent curve flipped into Contango this week, extending recent contraction in front-month spreads and flattening of the Brent curve. The weakness at the front-month contract indicates limited appetite from refineries due to weakening refinery margins as well as the ongoing maintenance season.
