Gold and Silver Climb Higher As U.S. Manufacturing Declines

Wall St. Cheat Sheet

On Monday, gold (NYSEARCA:GLD) futures for February delivery, the most active contract, increased $8.40 to settle at $1,721.10 per ounce, while silver (NYSEARCA:SLV) gained 41 cents to close at $33.73.

Both precious metals climbed higher and outperformed the broad equity market as manufacturing in the United States contracted in November for the first time in three months. The Institute for Supply Management’s index of manufacturing activity declined to 49.5, compared to 51.3 in the previous month. It was the lowest reading in over three years. Readings under 50 signal contraction. The employment index also fell below 50 for the first time since September 2009, while a measure of inventories plunged 10 percent, as business expect weak demand going forward.

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While superstorm Sandy might be responsible for some of the downturn, the negative readings build a case for more quantitative easing from the Federal Reserve.

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Christopher Vecchio, currency analyst at DailyFX, explains, “Nevertheless, it remains clear from the sub-indexes that growth abroad is a drag on the US economy while inflation, as measured by the Prices Paid subcomponent, remained stubbornly elevated despite declines across most of the board. The implications for the release are unclear given the noise accompanying it, but if data between now and the December 12 FOMC meeting remains weak, the chances of a new QE program – one that is already rumored to be in the planning stages – is very likely.”

In afternoon trading, the SPDR Gold Trust (NYSEARCA:GLD) gained 0.22 percent, while the iShares Silver Trust (NYSEARCA:SLV) increased 0.65 percent. Gold miners (NYSEARCA:GDX) such as Yamana Gold (NYSE:AUY) and Barrick Gold (NYSE:ABX) both fell more than 1.0 percent. Silver names such as Silver Wheaton (NYSE:SLW) and Endeavour Silver (NYSE:EXK) also dropped more than 1.0 percent.

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Disclosure: Long EXK, AG, HL, PHYS