The long term picture for precious metals remains quite bullish as central banks with free floating currencies are likely to launch new rounds of money printing in the months ahead. A renewed "flight to safety" and uncertainty over how the fiscal cliff will be resolved will also contribute to higher gold prices.
November 18, 2012
Precious metals fell for the fifth time in the last six weeks as a host of short-term factors have emerged to pressure gold and silver prices, notably a renewed "flight to safety" that has sent the trade-weighted dollar sharply higher over the last month (precious metals usually move opposite of the dollar), uncertainty over how the U.S. "fiscal cliff" will be resolved, and gold liquidation by leveraged traders to cover losses elsewhere as the broad stock market continues to fall.
But, as has been the case for more than a decade now, the long-term picture for precious metals remains quite bullish as central banks with free-floating currencies in Japan, mainland Europe, the U.K., and the U.S. are likely to launch new rounds of money printing in the months ahead. Also, investment demand from hedge funds, ETFs, China, and elsewhere in the world remains strong, the latest report from the World Gold Council showing increased demand in India, a nation that appears intent on remaining the world's largest gold consumer this year despite stiff competition from China.
For the week, gold and silver both fell 1.0 percent, gold down from $1,730.80 an ounce to $1,713.70 while silver dropped from $32.63 an ounce to $32.31. Gold is now up 9.7 percent for the year, down 10.9 percent from its 2011 high, and silver is 16.0 percent higher in 2012, down 34.7 percent from its high last year.
The silver price has been remarkably resilient in recent weeks as noted in this item at the blog on Friday. Along with Treasuries and the U.S. dollar, it was one of the few assets to muster a gain since the U.S. elections that accelerated investor's shift away from risk assets and toward safe haven assets. What appeared to be overly optimistic predictions for the silver price last week - toward $50 an ounce in 2013 by Philip Klapwijk of GFMS and to $165 an ounce by 2015 by Ian Williams of Charteris Treasury - don't sound all that outlandish anymore given the metal's recent performance.
As for gold, last week's World Gold Council report surely played a role in the price weakness seen on Thursday as many news reports carried the headline "Gold Demand Falls 11% in Q3″. If not for the fact that this is a comparison to record high demand in the third quarter of last year, it might actually be significant.
Recall that there was a chance the U.S. government might default on its debt last summer as Congress couldn't agree on how to raise the debt ceiling and credit agencies were threatening or issuing downgrades, prompting massive gold buying, particularly in Europe.
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