Gold and silver have been hit hard in recent trade. The question is: Will the bulls be able to stop the bleeding or is there more downside in store?
Gold started the week well above the $1300 level, in fact, gold at one point on Monday was trading for over $1320 per ounce. Silver, on the other hand, started the week off trading well above the $19 per ounce level. Then the selling began…
Gold and silver were hit hard on Tuesday, with gold falling by over $40 per ounce and silver shedding more than a dollar per ounce. The question is why.
Some analysts suggested that some “big player” fund activity may have been to blame, while others even suggested that embattled Deutsche Bank could have something to do with it.
The most plausible explanation, in our view, is that some large selling did take place amidst a lack of any fresh bullish inputs.
Gold and silver had not been able to carve out new fresh highs in recent months, and the uncertainty surrounding interest rates in the U.S. appears to be abating. The Fed has made it fairly clear that it intends to-and wants to-raise interest rates before the end of the year.
This has caused some bumps in the stock market but nothing of any significance yet. Higher crude oil prices have added some bullish sentiment to the equity market, helping to counteract any negativity over a December rate hike.
Bond and note prices have been falling as interest rates have been on the rise. The dollar index has also been moving higher as Brexit starts to become more of a harsh reality and the idea of higher U.S. rates takes hold.
More Brexit news is likely to become a center of focus for global investors, and investors will continue to watch the data stream in the U.S. Although difficult to imagine at this point, the Fed could still decide to hold off on a 2016 rate hike. It would likely take a major string of very poor economic data or perhaps some type of negative global economic headlines. Extremely unlikely, but still possible.
This week, investors will be watching the latest readings on MBA Mortgage Applications, Weekly Jobless Claims, PPI, Retail Sales, Consumer Sentiment and more. There will also be several Fed officials involved in various speaking engagements throughout the week.
Gold and precious metals are currently lacking any fresh bullish inputs, and unless some type of catalyst is seen, the metals could potentially remain under pressure. This catalyst could possibly be further negative news about Deutsche Bank, a larger breakdown in equity markets or any more dovish commentary from the Fed or stimulative action by other central banks.
Significant declines in “paper” gold or silver can represent fantastic buying opportunities in physical gold or silver. For now, we are of the opinion that sub-$18 per ounce silver represents an excellent value and great buy for the long-term investor. We would also expect gold to be bought at current levels, and for physical buyers to become more and more aggressive if prices decline further.