Gold and silver started Wednesday down significantly as stronger US economic reports on Tuesday bolstered the ongoing belief that the US economy is in a state of definite recovery. A better economy only adds credence to the thought that the US Federal Reserve may wind down its monthly bond-buying in the near future. Many investors have become complacent with the current monetary policy in that they thought it would last forever, but as things slowly come crumbling down around them they are starting to realize that things are changing rapidly.
Asian Happenings
Historically, the summer months are when physical demand for gold in Asia is at some of its highest points annually. This year we have seen a cash crunch in China which has reduced the amount of expendable income the average Chinese household has.
India is another Asian country that usually demands gold and silver by the boatload this time of year, but recently their government added additional taxes on gold and silver imports in an effort to help balance a very disproportional budget.
All of this news has prompted the spot value of gold and silver to decrease which has caused other countries to fear the commodities’ future value. While this fall in the spot value has caused bargain hunters to come out in droves, there is still some uncertainty as to whether the prices of gold and silver have bottomed out (or come close to) or if the decline is going to continue over the next few days and weeks. At this point no one can say for sure whether we have seen the worst or not yet, but one thing that is for certain is that investors will be keeping their eyes peeled for literally any news story that might affect the values of gold and silver.
Asian stocks posted mixed results on Wednesday as the credit crunch seemed to be a little bit less of an issue. Chinese monetary officials announced that the liquidity crunch that is ongoing is/was only temporary and will/has be(en) dealt with as they see fit.
Europe Keeping the Course
The president of the European Central Bank, Mario Draghi, announced that him and his colleagues will retain the current, accommodating monetary policy for the near future. What Draghi announced is currently going hand in hand with what other central bank presidents from around the world have been saying in the last few days.
The US Dollar Index is on the rise and posted 3 week highs during the overnight hours. As of late there have been few things standing in the way of the US Dollar gaining value.
Looking Ahead
Large-scale gold and silver liquidation has been the theme for almost a week now and it would not be too surprising if we saw both metals’ spot prices fall further before the end of the day. Some people are thinking that both metals have bottomed out, though others hold that the decline is far from over. The only thing that is clear at this point is that no one really knows what is going to happen to precious metals.