Central Banks on Deck, Precious Metals Bounce Higher

Wall St. Cheat Sheet

On Wednesday, gold (NYSEARCA:GLD) futures for December — the most active contract — jumped $9.70 to close at $1,317.80 per ounce, while silver (NYSEARCA:SLV) futures edged 13 cents higher to finish at $21.77. Major exchange-traded funds, like the SPDR Gold Trust and iShares Silver Trust, also closed in positive territory.

Gold and silver both received buying support as the U.S. Dollar Index, which compares the greenback in a basket against six other flat currencies, declined about 0.30 percent. The dollar witnessed a notable amount of weakness against the euro, as the European Central Bank is not expected to lower interest rates at its monetary-policy decision meeting on Thursday. In October, the euro climbed to its best level in two years against the dollar.

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“The U.S. Dollar is broadly lower on the day as risk appetite firmed on the back of improving data in the Asian and European trading sessions,” explained Christopher Vecchio, currency analyst at DailyFX. “Of note, the European currencies have started to perk up in recent hours against the buck, coinciding with slightly softer U.S. Treasury yields on the day.”

While many analysts and economists expect the Federal Reserve to dial down bond purchases sometime in 2014, the central bank will likely keep short-term interest rates near zero for several more years — helping to keep any dollar strength in check. According to a recent research paper from the Federal Reserve’s monetary affairs division, the threshold for short-term interest rates could be reduced from 6.5 percent unemployment to as low as 5.5 percent. This means the economy could have zero-bound interest rates until 2017.

By the end of the trading day, shares of the SPDR Gold Trust (NYSEARCA:GLD) and iShares Silver Trust (NYSEARCA:SLV) both gained about 0.50 percent. Gold miners (NYSEARCA:GDX) Yamana Gold (NYSE:AUY) and Newmont Mining (NYSE:NEM) increased 1.4 percent and 2.1 percent, respectively. Silver miner (NYSEARCA:SIL) Hecla Mining (NYSE:HL) jumped 2.6 percent.

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Disclosure: Long EXK, AG, HL, PHYS

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