Just when you thought sentiment in precious metals could not get any lower, it did. You can thank the price action. The big question is, how low can it go?
One week ago gold fell 0.8 percent to its lowest price since January, an eight-and-a-half month low. Silver did not fare much better, slumping 3 percent to a four-year low. Today, silver still sits at that four-year low. The dollar, contrarily, is still rallying on bets that US interest rates might rise sooner than expected, a bearish indicator for gold and precious metals.
The net long position in New York futures for gold fell for a fifth straight week last week, and speculators are looking short on gold as the dollar rallies. Investors combined to sell 7.75 metric tons of gold last week. Holdings are at their lowest in five years.
“There are no compelling reasons to be in gold,” said Brian Levitt, a New York-based economist at OppenheimerFunds Inc., which manages $US251.4 billion. “There are no inflationary pressures. You have a central bank that’s going to tighten sooner than most of its trading partners. That to me portends a strong dollar and weaker gold prices.”
Suffering its biggest drop since December 12, 2013, silver fell below $18 on Friday, while platinum fell to a new 2014 low. Palladium also hit a three-month low.
The dollar continued its rally for its 10th straight week of gains. Gold is still under pressure because of this, and US equities are also at an all-time high.
The selloffs were expected to continue into the week. In Singapore, sivler sold off through the second session on Monday.
“It is hard to get too excited about the precious metals
group at this stage, as poor and uninspiring technicals will
likely continue to exert pressure on prices,” INTL FCStone
analyst Edward Meir said in a note.
2013 was not much nicer to gold than 2014 has been. Last year, gold fell 28 percent to end a 12-year bull run. Low prices are not expected to spur much demand for precious metals considering that demand has remained stalwart out of the US Mint, which means there likely is not much money on the sidelines looking to get into gold.
With demand in China slumping and sentiment in the west keeping hedge funds away from the metals, it might be true that we are not at the end of this consolidation.