The last few weeks have been pretty exciting in the gold and silver markets. Just in the last couple of weeks, gold has hit an all-time high while silver has increased dramatically as well.
Peaking at around $1387 per oz, the price of gold has dipped back to around $1320 in the last few days…in fact, gold has increased almost exactly $300 per ounce this year alone.
Renewed fears of another recession and more importantly, fears the Fed will once again resort to ‘quantitative easing’ has led the latest up-tick in gold prices. Add to this the ongoing ‘currency wars’ between the U.S. and China and you’ve got the ingredients for a big increase in the gold price.
The last few days though have seen a slight pullback in the gold price because of the dollar’s temporary strength. As we’ve said before, gold and the dollar share an inverse relationship…when one increases, the other decreases.
And it goes without saying – many institutional investors are likely pulling back somewhat and taking some profits.
One interesting observation about the latest run-up in the gold price – the surge of the last two weeks was not driven primarily by traders on the COMEX exchange or fund-managers buying metals for their exchange traded funds. Of course, we can only speculate after a certain point what causes gold prices to rise…it can partially be attributed to an up-tick in investment sales.
Another reason is due to many central banks in the world buying gold reserves. In the last few months, many central banks around the world have steadily been purchasing gold for their reserves. India in fact purchased 200 metric tonnes of gold from the IMF earlier this year.
It’s expected the gold price will continue this “see-saw” pattern we’ve been seeing for awhile, that is unless the value of the dollar stabilizes or increases. If that were to happen, a sizeable correction in the gold price could likely occur.
However, hardly anyone is expecting this in the near future.
On the silver front, the price per ounce has been steadily on the rise since early to mid-September, peaking at around $24.90 per ounce. Some have been concerned the silver market is over-heating and due for a correction.
Currently at $23.70, if the silver price falls below $23, some feel this is a sign a correction is underway. China’s announcement that it is raising interest rates caused some brief selling in both the gold and silver markets.
We’ll continue to watch the economy and precious metal markets very carefully over the next few weeks. Any new quantitative easing measures by the Fed along with higher demand from all sides (jewelers, investors, other banks) will certainly lead to higher gold prices.
Keep checking back with us often to get a glimpse of what’s happening in the precious metals markets going forward.
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