It was a President´s Day in the US on Monday and nothing happened on the precious metal market. Tuesday was similarly calm day and precious metals prices were down just a little bit. The smash down of precious metal prices came on Wednesday. Gold was down for more than $40 and silver was down for 88 cents with huge trading volumes. Thursday was small consolidation day and Friday was quite a calm day compared to the middle of the week.
Gold finally closed on $1581.5 per ounce what was $28.60 lower compared to previous week. Silver closed on $28.76 per ounce what was $1.04 lower compared to previous week. The gold/silver ratio is 1 to 54.99 (i.e. you could buy 54.99 gram of silver for 1 gram of gold, it was 54.03 week before). So gold was relatively less hurt in comparison with silver. HUI index (index of the most important gold mining companies) ended at $359.63 and was lower almost of $20 compared to previous week. XAU index (index of gold and silver mining companies) ended at $136.31 and was down for $7.59. During the week both indexes hit the two years record lows.
As we expected net short concentrated positions of bullion banks on COMEX were significantly down for gold and for silver as well but the data set describes situation only till Tuesday once again so we do not know what exactly happened during the rest of the week. But we can assume that commercials decreased their net short positions on both metals once again because price declines were pretty significant during the last week.
This week price decline is definitely connected with information from FED that some of the members of FOMC board believe that the current program of asset purchasing may need to end prior to the achievement of the Fed’s announced goal of improvement in employment. Announcement caused a big downtrend movement on both prices. So what to expect in the near future? Mining companies’ indexes hit the record lows for past two years. Both prices of gold and silver were significantly below 200 day moving averages. Gold 200 day moving average crossed 50 day moving average which signals so called “death cross” or the reintroduction of the bear market on gold. Silver is moving similar direction but is just closed to death cross compared to gold. On the other hand August and July futures contracts on both metals were very under the spot price which means that we are in backwardation. The GOFO rate (gold forward rate) is also quite down which signals tighten situation on the gold physical market as well; the SIFO rate have not been published since November last year. Some investors think that the market is forming a major bottom and that gold and silver could be oversold or speculate if the death cross is not the information for Asian market to start to buy once again. However it is impossible to determine exact bottom price levels but there are some expectation on $1520 on gold and $27 on silver. But could we go under this level? Theoretically yes. As I wrote last week the situation is quite chaotic and to make any prediction is almost impossible. But one thing is still very certain from my point of view. Nothing was really solved in the economy notwithstanding there is a current positive sentiment on stocks.
Overview of the prices of gold and silver for the remaining periods:
Source: upner.com, kitco.com