Metals’ drop could be in favor to some investors
Once again, precious metals fell noticeably throughout yesterday's trading session, whereas gold continues to trade at its lows for the third consecutive week. The shiny metal dropped yesterday to record its lowest at 1093.80 and closed lower by 3.55% at 1097.10 in New York. The sharp drop that gold witnessed yesterday was due to the volatile bullish dollar wave that pressured gold and pushed it to evidently depreciate.
Silver also fell by 3.17% yesterday to close at $17.13 per ounce; whereas platinum followed and declined 1.79% closing at $1427.00 per ounce. The bearish wave that overshadowed precious metals yesterday was caused by profit-taking and speculative short selling in electronic and future trading which played a role in the drop. Presently, investors are gaining profits and are short selling due to their expectations of the dollar continuing to climb, alongside the improvement enveloping global financial markets.
Meanwhile, global equity indices declined yesterday, where today in Asia we witnessed the continued bearish trading; the DJIA dropped by 1.27%, while Nikkei followed and plunged 0.21%, FTSE 100 also dropped by 1.93% and DAX declined by 1.00% yesterday.
Commodity indices also witnessed a drop yesterday; the S&P GSCI index fell by 4.17 closing trades at 499.38 in NY, while the RJ/CRB index also plunged 2.62 points closing at 276.13.
The current dilemma is the immensity of decline trades are witnessing, where these plunges are making financial markets all around the globe shallow and easily affected by major fluctuations. This major fluctuation occurring in precious metal markets were also due to the low volume, thus making us think that drops currently occurring do not represent the opinions of the majority of investors, banks, portfolio managers and numerous other sides.
However, we see that profit-taking waves are currently increasing whether in spot of forward markets, whereas the physical jewelry demand is rising, taking advantage of the drop, in addition to demand by banks. Meanwhile, central banks are still persistent in purchasing the shiny yellow metal or at least holding onto it through swapping with governments; like for example what happened in Russia with the central bank demanding more gold reserves which has been bought from the government, where the deal is expected to be completed by next week.
It is expected that the second half of 2010 will witness very low interest rates across major economies around the world, alongside liquidity being pulled from financial markets, affected by the withdrawal of the non-standard facilities from central banks as its effect might gradually be witnessed across financial markets.
All of this encourages holding gold reserves, and therefore withstanding the upside bias for gold over the medium term. Furthermore, inflation levels stabilized near levels desired by a number central banks, where there are current expectations that inflation might rise even further and reach high levels over the long term, since the drop in interest rates and monetary policies could be the first spark to ignite inflation when the global economy returns to normality; thus, indicating that gold could ascend over the long term as well.
Despite of the long and medium term bullish gold expectations, in conjunction with other expectations for general appreciation for metals, the short intraday and intraday term outlook will be embedded with heightened volatility and fluctuations tied to the dollar's movement. Today, the shiny metal rose by 0.76% and is trading at $1105.40 as of 02:17 a.m. EST; silver also appreciated by 0.58%; whereas platinum followed and inclined 0.42%. Silver is trading at $17.23 and platinum at $1433.00 per ounce.
The rise that had occurred today in precious metals was accompanied by the dollar's downside correction, where demand is witnessed every once in a while with every dip in the market; thereby reinforcing the idea for the bullish medium and long term outlook. Meanwhile, some analysts are still expecting prices near $1300 and $1400 as a possibility in 2010 for gold, but at the same time the current bearish wave alongside the volatile fluctuation in financial markets could continue for some time, especially when we are currently in a month that is witnessing extremely low trading volumes and therefore causing volatile movements in metal markets, but it is not being backed by large trading volumes, which could indicate that the current direction is minor compared to the previously bullish one.