Precious Metals Decline, But Inflation Report Provides Excuse for More QE

Wall St. Cheat Sheet

On Wednesday, gold (NYSEARCA:GLD) futures for December — the most active contract — fell $8.60 to close at $1,334 per ounce, while silver (NYSEARCA:SLV) futures declined 17 cents to finish at $22.62. Major exchanged-traded funds, like the SPDR Gold Trust and iShares Silver Trust, also finished the day in negative territory.

Gold and silver were relatively quiet as global price pressures remained soft in September, according to import and export price data released from the U.S. Bureau of Labor Statistics. The price index for imports increased 0.2 percent on the month in September following a 0.2 percent increase in August. On the year, import prices are down 1 percent.

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Export prices climbed 0.3 percent in September, breaking a six-month decline and foiling expectations for a 0.1 percent decline. Export prices have declined for most of the past year and are down 1.6 percent compared to last September. Export prices have declined for both agricultural and nonagricultural products.

Inflation as measured by personal consumption expenditures — the preferred metric of the U.S. Federal Reserve — has averaged about 1.8 percent over the past three years, slightly below the Fed’s target rate of 2 percent. Given the recent political showdown in Washington and underwhelming labor market data, most economists and market participants are expecting the Fed to withhold tapering until 2014. This has pushed monetary policy to the back burner, as traders and investors expect the Fed’s position to remain accommodative through the fourth quarter.

By the end of the trading day, shares of the SPDR Gold Trust (NYSEARCA:GLD) fell 0.50 percent, while the iShares Silver Trust (NYSEARCA:SLV) declined 0.60 percent. Gold miners (NYSEARCA:GDX) Barrick Gold and Yamana Gold (NYSE:AUY) dropped more than 2 percent. Shares of First Majestic Silver (NYSE:AG) and Endeavour Silver (NYSE:EXK) fell 4.6 percent and 4 percent, respectively.

The SPDR Gold Trust is down about 21 percent year-to-date.

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Disclosure: Long EXK, AG, HL, PHYS

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