Are Precious Metal Markets facing a dumb and dumber Situation?
One of these days a trader was asked, why have you purchased this share double its original price? Doesn't that seem quite dumb? The trader thus responded: although I do seem stupid right now, later on someone dumber will come along and purchase what I have at a higher price! This condition has become extremely familiar in current financial markets, where it has become recognized by some as the dumb and dumber theory within financial markets.
Nowadays, numerous traders are in fear of precious metals trading amidst this dumb and dumber theory, where they are jittery about whether a time will come when precious will sharply drop and stabilize near its fair prices; however, the excuse traders are using is that improvement in global demand on precious metals, as well as the truth about the global economy do no correlate with the appreciation precious metals have been witnessing; specifically gold.
As for this week; gold recorded another historical price on record, above $1144.00 per ounce, where its price yesterday remained near these levels to close trading at $1140.60 in New York, within limited trading where it did not surpass its lowest at 1127.00; electronic trading, on the other hand, also did not pass its lowest throughout New York's stock exchange at $1129.90, where gold seems to have slightly risen, but maintained its positivity to continue its ascend for the third week in a row without stopping.
Gold appreciation was not only due to speculations, but the purchase of gold from numerous central banks like the Indian and Sir Lankan bank from the international monetary fund, alongside other numerous global commercial banks, investment and hedge portfolios purchasing gold for man reasons; where the most important reason is setting reserves and safe havens, incase the dollar falls.
Meanwhile, the improvement in economic conditions around the world is clearly evident; however, this progress in major economies has not reached to point of recovery and complete revival, where limited improvement was indeed witnessed in numerous countries such as Germany, France and Japan; which were able to officially exit the technical economic recession and show clear improvement. The U.S. also managed to stop its contraction. Yet, all this was not accompanied by overall progress in the economy, where major economies are still suffering and remain frail. These facts are making numerous sides demand gold as a safe haven, in an attempt to confront the hazy global economy.
The massive quantitative easing policies around the world and similar policies, alongside very low interest rate throughout major countries; are reasons that are causing available liquidity in financial markets, as well as large global economies. However, the rise in crude's price alongside the spike seen in numerous main commodity indices around the world, come with the drop in the U.S. dollar; thus, causing a real threat for inflation levels, where the economy will bounce back to growth. Conversely, even if major economies remain weak it could cause large countries such as China and countries like it to demand in a massive rate; thus, causing a spike in prices along with weak major economies continuing, and therefore creating a larger problem. Alternatively, all this comes in interest to gold, which is considered to be a safe haven incase of a weak economy and inflation rate and well.
So far dear reader, we see that what is currently occurring to gold from rises, truly expresses the truth of numerous demands happening, not only consumer demand but also speculative demand as well; at the same time we see traces of investment demand, since we find gold's constant rise causing it to not only be a safe haven but also an asset and a great investment due to it's constant spikes that we are witnessing.
Today, gold is trading around $1140.00 per ounce (precisely at 02:50 EST), close to its close in New York yesterday; thus, proving that demand on gold has stabilized despite of its rising price. Meanwhile, commodity indices gained yesterday; the S&P GSCI index rose by 1.71 points to close at 519.58 points; whereas crude is trading above $79 per barrel; the dollar, despite of rise in yesterday's trading price, remains near its lowest levels since 15 months. These reasons guarantee that demand is generally on precious metals, specifically gold.
In addition, silver and platinum also rose in yesterday's trading session by 0.11% and 00.55% in a row; whereas in today's session these metals traded in a fluctuating and mixed manner. Platinum lost most of what it had gained yesterday in New York, where today is dropped by 0.55% to trade at $1449.00 per ounce (precisely at 02:50 EST); meanwhile, silver also followed in platinum's footsteps and fell today by 0.11% to trade at 18.40. The fall witnessed today on these metals is due to the natural profit-taking occurring after the major highs seen throughout this week; meanwhile, yesterday's data showed that the U.S. economy data was positive but remained below expectations that encouraged the correctional bearish wave for today, especially after a another contraction had emerged in demands on factories in Japan.
The current overall image of the economy, in addition to economic data, caused volatile fluctuations in precious metals, but as previously mentioned throughout this report, what we are witnessing in precious metals; gold specifically, are not similar to the dumb and dumber trading technique, since for every investor and speculator has his own reasons for buying, thus maintaining the bullish medium term direction with the current economic conditions; however, the intraday short term will no doubtfully fluctuate as long as speculations are occurring to one of the precious metals in the market, especially since they shift from investment to another quickly with a constant change in their faith in financial markets. We recommend keeping an eye on the dollar's movements, since it will could the biggest push in liquidity within previous metal markets.