Gold continues to rise in defiance to forces of supply
Many precious metals fell throughout yesterday's trading session; where platinum and silver depreciated by 0.11% and closed at $18.54 per ounce in NY. The drop continues today, where silver is trading at $18.51 per ounce and fell by 0.16%, as of 02:33 EST this morning.
Platinum also followed and fell both yesterday and today; it recorded a minor rise yesterday by 0.14% and closed at 1443.00 in NY, meanwhile today it fell again and lost all yesterday's gains trading lower by 0.28%, while currently trading at 1439.00 per ounce. Precious metals faced negative pressures throughout yesterday's embedding session due to the dollar's appreciation against a basket of foreign currencies, where we see that the U.S. index rose from 75.06 and closed at 75.25 points after achieving its highest at 75.51 points.
The dollar's spike was a major factor behind profit-taking within financial and precious metal markets. On the other hand, commodity indices had fallen throughout yesterday's trading session; the S&P GSCI index dropped by 9.54 points and closed at 510.65 points in NY, energies hold the most weight in this index, therefore though the influence is not direct it is still very high, and is considered to be one of the most important indices in predicting future inflationary pressures. The index's drop caused more profit-taking in precious metal markets; whereas the RJ/CRB COMMODITY index fell by 3.26% and closed at 274.27 in NY, as this index takes more into consideration metals weight than the former index.
Meanwhile, the global economy does seem to be witnessing improvement, where it could have exited the recession, but in return we could see the economy returning to stability, except that it might need a longer time to do so due to its current frail conditions and high unemployment rates; therefore, providing traders the possibility of weak demand on commodities and services, meaning low prices and in return causing instability in precious metal markets. This situation could largely affect silver and platinum, especially since platinum is considered to be an industrial metal alongside being a precious metal, while silver is also being used in industries; thus, we see speculators liquidating throughout precious metal markets, specifically when it is concerned with the global economy and these two metals directly more than gold.
Despite of the major plummet which occurred on gold yesterday, falling from highs of 1146.40 to the low of 1129.10, it managed to return to close with a rise of 0.10% at $1144.60 per ounce. However, gold today managed to trade at 1145.40 appreciating once more by 0.07%; illustrating that gold is resisting many forces of supply that have appeared due to speculators and investors in the market.
The major drop gold faced reflected on the average price in London's trading session; depreciating from $1136.00 per ounce in the AM fixing and closing the average price at 1135.50 in the PM fixing. As we can see, even trades in London saw gold rise from its low levels of 1129.10, as purchasing power still roams precious metal markets towards gold as a safe haven from the hazy situation in the global economy, alongside the weakened financial markets and continued risks from the credit crisis.
How can one explain the drop in demand on gold by 34% in the previous third quarter, according to the Consulate of Global Gold as we can see continued rise to all time highs for the metal. Physical and consumption demand is no doubtfully depreciating day by day, the gain by the price is causing low demand at a time consumer purchasing has depleted due to higher jobless rates, alongside the instable economic condition. Meanwhile, we still see numerous sides demanding gold as a safe haven, which include central banks like the Indian and Sri Lankan banks as well as others, where we see hedge funds include gold investments as a safe haven against fears of a the dollar's continued depreciation.
Mr. Bernanke pointed out that lower interest rates alongside debt purchases, could remain intact until unemployment and spending rates stabilize; thus, maintaining the lowest interest rate levels in the U.S. fed's history!
A major drop in global interest rates may cause a surge in inflation on the long term, alongside crude continuing to rise, is being accompanied by uncertainty about future expectations for the global economy. However, if all these factors were combined, with the dollar's sharp fall, they merely add support for gold.
Our expectations are for gold to record further gains over the medium term, if current economic conditions stabilize or inflation levels rise. Meanwhile, on the short term we cannot exclude the sometimes volatile bearish waves emerging from the dollar's high fluctuation, alongside liquidity in gold markets by speculators and investors profit-taking every once in a while. In addition, other precious metals are also expected to appreciate over the medium term, whereas the intraday and short term outlook could face large and volatile fluctuations. Meanwhile, other precious metals like silver and platinum are being greatly affected by the global industrial sectors, alongside the optimism and pessimism condition overshadowing financial markets.