Why is Gold and Silver Going Down

After receiving a few concerned calls about the recent market activity, I thought I share my opinion on the current market conditions. To truly understand why gold and silver spot prices are going down, one has to understand the current Economic climate. Currently there is a lot of uncertainty in the market place. Policy makers have not proposed a clear blue print for the future, so nobody is really taking any long term positions in the market. With that said traders still have to go to work and try to earn a living.

As an ex-trader, I can share a few things with you that might ease some of the stress that you might be dealing with now. When there is uncertainty in the market place, traders rely heavily on technical charts and market indicators. They go in and out of positions faster than they could digest their lunch. It’s also important to note that spot prices are affected by trading “paper gold” and not physical. Even thou the paper market have been selling off, the physical market has not been able to keep up with demand. To date in 2013 the US mint has sold 406,500 ounces of physical gold and 10,044,500 ounces of physical silver, some of the highest reported numbers since 2008.

Until the looming fiscal cliff and debt ceiling issues are resolved there will be a tremendous amount of volatility with the precious metals market.  As the equities markets are gaining ground due to the artificial strengthening of the US dollar, Traders are taught to bet against precious metals. It’s also important to note that most positions are only trading for a short amount of time as Traders scalp the market and take profits where they can. This market activity creates buying opportunities for long term position holders in precious metals.
Let’s take a look at some technical’s to get a better sense of what’s happening to the market and try to predict some buying opportunities

Gold Chart

As you can see Gold is approaching a resistance line of $1,540.59 many traders are waiting for that number to be reached before putting in buying orders. You can be sure that right now is a great time to buy gold, if you wanted to cost average your gold position, or get into the market.  It’s important to note that gold prices may never reach the resistance number so waiting for that number to be reached before pulling the trigger may not be a wise move.

Silver Chart 2.21.13

With silver we can see that there are 2 major resistance lines 1 at 28.09 the other at 26.32. With the industrial demand for silver higher than ever, reaching the second resistance line is unlikely to occur. The next major event is scheduled February 26-27 semi-annual testimony on monetary policy to Congress by Federal Reserve Chairman Ben Bernanke. Although he is probably going to avoid talking about the Fiscal Cliff the markets will be watching for any indicators of possible policy.

In conclusion it’s important to remember that physical gold and silver positions are “long term” hedges against the declining dollar. There will always be temporary market adjustments and volatility. Understanding fundamentals of an economy is what successful investors base their actions on.  Currently our unemployment numbers are not improving, we are not creating any more jobs or importing less goods. Additionally, we are printing more money than ever with the green light of QE3. All these factors make for favorable market condition for a long term position in precious metals. The current economic climate has provided a great buying opportunity. This is the time that clients should “dollar cost average” their metals position or enter into precious metals for the first time. We may not see metals at these prices ever again.
As always, please don’t hesitate to call me or your Numis Financial account executive to discuss current market conditions, product specials and more.

 

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