Gold and silver prices sold off as traders booked profits
Thursday following a rally the prior session sparked by the
Federal Reserve announcing more economic stimulus.
In afternoon trade, spot gold prices plunged 0.98% to
1,695.80.SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, gapped down 0.94% to
This could be a classic case of traders "selling the news" in
the wake of the Fed pledging to more than double its monthly
asset purchases from $40 billion to $85 billion until the
unemployment rate falls below 6.5%.
"Gold and silver follow a pattern of running up ahead of
quantitative easing announcements and then having sharp multiday
sell-offs afterward, so there might be more selling for a couple
more days," Mark Thomas, founder of
Silver Price Advisor
, wrote in an email. "This same pattern happened in September
when QE3 was announced. It shows ... this insane monetary policy
is losing its effect and financial markets have become addicted
to liquidity injections."
He also believes traders are booking profits ahead of year's
end to save on taxes, which are expected to increase next
Christopher Blasi, president of gold and metals dealer Neptune
Global Holdings in Wilmington, Del., sees a deflationary angle.
"It is a pretty sure sign that deflationary forces are in place
and the Fed's play book is wanting," he wrote in an email.
"Investors understand that gold will appreciate vs. the dollar in
an inflationary environment, but many don't know that gold will
outperform in a deflationary environment relative to other assets
and when calibrated in real purchasing power."
Gold is forming a base or consolidating in a price range below
its 50-day moving average but above its 200-day moving average.
That indicates it's in a weak long-term uptrend. It has to break
above its 50-day line "to get any traction to the upside," says
Janice Dorn, co-founder of Jtrader.us. Until it breaks above the
50-day line and holds, any short-term rallies approaching that
level will be met with selling, she says.
Gold could consolidate for a few more weeks before continuing
its uptrend, says Peter Spina, president of GoldSeek.com in
Littleton, Colo. The fundamental catalysts to drive prices higher
remain intact, he says. The Fed's continuing policy of printing
money to buy bonds will devalue the dollar, making
dollar-denominated commodities more expensive. He expects gold to
find buying support at $1,650 to $1,675 an ounce.
PowerShares DB U.S. Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, ticked up 0.14%. It usually moves opposite from gold.
It's trading below both its 50- and 200-day moving averages,
reflecting severe weakness and a strong downtrend.
Market Vectors Gold Miners ETF (
) fell 3.10% to 46.15. It failed to break above its 200-day
moving average during Wednesday's pop. Its chart shows a strong
The price of silver, typically more volatile than gold,
dropped 3.23% to 32.47 an ounce.
IShares Silver Trust (
) fell 3.10% to 31.37.
Global X Silver Miners ETF (
) gave back 2.89% to 22.82.
Thomas of Silver Price Advisor projects silver will soar to
$42 an ounce next year.
In the meantime, commercial traders are overwhelmingly trading
silver short, in hopes of profiting from falling prices. Terry
Sacka, chief strategist at Cornerstone Asset Metals, in Palm
Beach Gardens, Fla., expects silver prices to rally once the
short sellers close their positions by buying back the contracts
As of late November, the commercial traders had sold short
99,317 silver futures contracts, totaling 496,585,000 ounces of
silver. That amounts to about two-thirds of 2011's worldwide mine
production and is the highest level of short exposure since 2009,
according to Sacka.
"The pressure is on the shorts. When they have to cover, watch
out," Sacka wrote in an email. "Wait until the fiscal cliff is
resolved and you should see some interesting fireworks."
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