Gold and silver fell sharply on a flow of positive economic expectations


Late Tuesday the price of precious metals edged down by more than 1.5%. This was the largest one day decline in more than a month. The drop came after positive economic expectations pushed US equities to almost a record high. Therefore, the safe haven appeal of precious metals weakened.

Wednesday morning in Asian early trading, gold slipped even more by trading at $1567.85 per ounce. In the last 24 hours the yellow metal went down over $32.00. We expect much more dramatic decline in the coming months.

The white metal also registered a sharp decline yesterday. Silver price declined further this morning by losing 27 cents to trade at $26.978 per ounce. Traders see a great entry opportunity at the current levels.

The biggest ETF backed by silver are metal holdings of ishares silver trust. On the first day of April, the ishares ETF fell tumbled down to 10,703.59 tons.

On Monday SPDR Gold Trust GLD holdings stood at 1217.05 tons. This morning the world’s largest gold-backed ETF holdings fell by 0.67% to sit at 1208.92 tons.

There was a tepid pickup in the dollar index up to 82.931. The massive losses of precious metals were triggered by sharp edge down in demand for industrial metals. The demand weakened after US factory orders data fell under the expectations while European PMI data also was disappointing.

The price of gold declined heavily due to a renewed optimism about the US economy. The positive prospects raised the worldwide risk appetite and damaged the yellow metal’s safe haven appeal.

On Friday, positive non-farm payroll data is expected to be announced. This could hamstring the US Federal Reserve’s asset purchase program. In addition, this could damage gold demand as an inflation hedge. Currently analyst project gold prices to fall further. We see it somewhere between $1200 and $1300 in the summer months. That is due to a strong equity markets and improving outlook for US economy. The combination of these factors will continue to put pressure on the precious metal.

For the next few days, gold traders are very much likely to stand on the sideline. They will expect the outcome from the two day meeting of Bank of Japan. On Tuesday the new leader of the bank gave firm signals that the financial entity will reach its 2% inflation goal. Therefore, speculators are expecting aggressive stimulus from the bank.

On Thursday the European Central Bank and the Bank of England will both post their rate and policy decisions. Therefore, some traders are expecting some kind of stimulus from the UK government tomorrow. The projections are provoked by the major decline of the pound brought by weak UK manufacturing PMI. The government is not likely to increase asset purchases to 400b pounds. There are many reasons for that. The unemployment in Europe hit a record high of 12%. In addition PMI in the Euro Zone failed to live up to the exception. At same time the projection for Germany also went all reported below its outlook.

Traders are praying that ECB will give more light to a possible rate cut down. Meantime US traders are anxiously awaiting the non-farm payroll data scheduled this week. That because the numbers will have an effect on Fed’s stimulus. At the moment the yellow metal is placed in a delicate situation. Fed is likely to curb stimulus efforts as the US economic growth improves further. That will push gold into the so-called bear market. Till then, the yellow metal is expected stay weak as it is likely to go back in the previous down side at around $1520.00 per ounce.


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