Will metals hold their grounds against the dollar’s strength?
Precious metals appreciated yesterday, where they were capable of withstanding the bullish dollar, which rumbled across financial markets. The dollar surged after the FOMC said some of the liquidity facilities provided will end in February and the TALF will end as scheduled. The fed insisted on pointing out that the economy still needs interest rates near zero; however, the withdrawal of expected excess liquidity in financial markets influenced traders to anticipate a stronger dollar; powering greenback into a new bullish wave.
Gold managed to rise throughout yesterday's trading session; recording its highest at 1142.10 in New York, but returned to slightly drop and close at 1137.50 gaining higher by 1.29%; while, silver also ended trades at 17.69 rising by 1.73%; platinum humbly inclined and did not surpass 0.41% closing at $1453.00 per ounce.
Meanwhile, precious metals yesterday were able to withstand the dollar's rise, where they managed to end trades higher due to speculative demand, alongside a slight haven demand as the feds indicated the need of low rates to support the prevailing weakness of the economy.
The gain witnessed by precious metals yesterday came alongside commodity indices gains; the S&P GSCI index rose by 8.77 and ended at 503.55, nearing its highest recorded this year; the RJ/CRB index gained 4.48 and ended trades at 278.75 in New York yesterday.
By glancing at stock markets, a clear difference in main U.S. indices' performance is evident, but all in all we see that indices dropped before the end of the U.S. session; letting loose of most gains acquired. As for today, we witnessed another bearish wave within Asian stock market, as they ended in the red. In addition, crude's drop also played a major role in metals entering the bearish wave.
As of 02:37 a.m. ET; precious metals lost most of yesterday's gains, where platinum was the metal to suffer the most losses yesterday and today. Meanwhile, gold today is trading at 1126.50 down by 0.97%; silver dropped as well and was trading down by 1.58% at 17.41. However, platinum resumed the downside pressures and continued plunging today by 0.76% to trade at 1442.00.
The drop was influenced by the dollar's dominance across markets today, since it seems like precious metals were not able to stand in the face of the dollar's glory today. Also, inflation levels seemed relatively low, alongside the fed's signs of the inflation remaining subdued over the coming period, making traders abandon gold and head into other investments; specifically since there is a group of investors that believe in the proportionate relationship between gold and inflation. Despite of the inflation rising in the U.S. economy, which was seen in yesterday's consumer price index, this level remains reasonable as the U.S. feds think that inflation might not cause a problem over medium term.
The dollar's persistent rise, with the current low inflation levels, could continue negatively pressuring gold, and since the U.S. economy, including the global economy, remains weak it could keep demand on silver and platinum limited.
We might see precious metals depreciate in the upcoming period, due to the effects of the dollar's rise and drop of inflation levels across the global economy.
However, we think that precious metals could not be able to stand against the dollar's rise, incase economic conditions remain as they are now; the medium term shows that the bullish direction is still intact, where we could witness levels from $1300.00 to 1400.00 per ounce throughout 2010. The overall outlook is that the upcoming days could witness a bearish short term correction that is expected to prevail.
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