Did precious metals bubble burst or to grab an opportunity?


Fresh turmoil in global financial markets led investors and traders to rush selling gold, silver and other precious metals.

Last Wednesday the U.S. Federal Reserve announced a plan to swap $400 billion in debt to try to help the country’s economy. Many market players deemed the plan insufficient and reacted by  shorting  all assets perceived as riskier as they opted for cash and treasuries. The negative sentiment spilled over to Friday metals trading. Large investment funds diverted their short term investment strategies into treasuries and currencies.

On Friday gold futures notched their largest one-day percentage drop in five years, ending 5.9% lower.

Silver ended 18% lower, which marked the worst in decades white metal’s performance. Platinum stumbled 5.7% and other metals also collected a slew of low marks along the way.

Gold for December delivery lost $101.90 to settle at $1,639.80 an ounce on the Comex division of New York Mercantile Exchange. That was the yellow metal’s largest one-day percentage drop since June 2006,.

For the week, gold lost 9.7%, its worst weekly performance going back to at least the mid-1980s.

Friday’s metals selloff extended to December silver , which settled $6.48 lower at $30.10 an ounce, its lowest finish since Feb. 11, when it settled at $29.99 an ounce. The white  metal’s nearly 18% drop was its biggest one-day percentage decline since the early eighties.

Platinum futures also fell the most in a single day since May 20, 2010. The October contract declined $97.40, or 5.7%, to $1,613.20 an ounce. That was platinum’s lowest settlement since Sept. 21, 2010, when it closed at $1,612.40 an ounce.

December copper had moderated its losses until the middle of the sesion, but selling pressure in the last hours also left its mark. The contract lost 21 cents, or 6%, to end at $3.28 a pound, its lowest since Aug. 25 2010, when it closed at $3.21 a pound.

December palladium declined $21.55, or 3.3%, to end at $642.50 an ounce.

Gold has gotten so much safe-haven buying during the past year, that a significant correction seems somewhat natural. Stabilization of the price could come around the $1,650-an-ounce level. The correction of the near parabolic spike movements of gold and silver from the beginning of 2011 may be considered as consistent with very much higher price levels in the near future.

For traders it may be hard to hold on to a volatile asset class, but gold has delivered in performance over the past decade while the US stock market has also been volatile and delivered nothing, except losses due to inflation.

The current silver price may be considered as a good buying opportunity too.


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