Precious metals investors looking for a bright spot in the market were disappointed again today. On the back of the US dollar hitting a four-year high, gold and silver hit their lowest prices since 2010.
The yellow metal dipped below the key support level of $1,200 on Thursday, but the fall continued Friday as gold dropped 3 percent to hit $1,161.25. That’s it’s lowest price since July 2010, according to Reuters. The metal was trading down 2.8 percent, at $1,164.64, at 13:44 GMT.
Spot silver followed those losses, touching as low as $15.76 an ounce. The metal was down 3.1 percent, at $15.92, during Friday trading hours.
Strong dollar, surprise move from Japan
Driving those losses was the strength of the US dollar and the Federal Reserve’s decision to end asset purchases this week, but a surprise move by the Bank of Japan to increase stimulus also came into play. According to Bloomberg, the bank “raised its annual target for enlarging the monetary base to 80 trillion yen ($723 billion), up from 60 to 70 trillion yen,” and that drove the currency to its lowest level in six years.
Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen, told the news outlet, “Japan basically pushed gold over the edge as it triggered a major risk-on move.” Overall, he believes that the combination of those factors was “more than the market could cope with this week.”
Echoing that statement, Edward Meir of INTL FCStone said, “[g]old is again confronting the specter of a stronger dollar, rising equity prices and tame inflation, a trifecta that does not bode well for price prospects going into 2015.”
Asian demand not a saving grace
Demand from major consumer China is not helping either. Although an article from Mineweb notes that based on data from the Shanghai Gold Exchange, physical gold demand from China “appears to be taking off again in a big way,” Reuters states that purchases on Asian physical markets did not rise to support the yellow metal this week.
Citing the China Gold Association, the news outlet notes that gold consumption in China fell 21.4 percent for the first nine months of 2014, year-over-year.
Still, Mineweb’s Lawrence Williams suggests that while demand may be lower, it is rising quickly. He also points to a few reasons why this week’s price drops are overdone. For instance, he notes that quantitative easing in Europe could rise even though it’s ending in the US. Furthermore, he states that European interest rates are currently at “rock bottom” and that the Federal Reserve seems hesitant about raising interest rates.
In any case, it’s not a great day for gold and silver bugs. Those precious metals investors will be hoping for a turnaround soon, and will be watching the market for positive signs.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.