Investors hammered gold and silver prices to new lows
Wednesday while bidding up the dollar after Federal Reserve
minutes revealed that several members want to curb the central
bank's economic stimulus programs sooner than expected.
Gold miners stocks crashed to their lowest levels in nearly
four years while silver miners collapsed to six-month lows. But
gold bugs remain undeterred on expectations that the Fed will
have to continue quantitative easing, commonly seen as printing
money, to support the economy.
Spot gold prices melted 2.6% to $1,564 an ounce.
SPDR Gold Shares (
), tracking a 10th of an ounce of bullion, on the
stock market today
slipped 2.5% to 151.43 -- its lowest close since late June.
Volume swelled to nearly three times average.
PowerShares DB U.S.
Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, climbed 0.8% to 22.14 -- a three-month high. Although
it's regained its 50-day moving average, it still trades below
its 200-day line, which means it's still in a long-term
downtrend. Gold and the dollar usually move in opposite
directions as it takes fewer dollars to buy gold when it's
"The underlying driver behind the sell-off in gold, both today
and for the past four months, is the realization that QE is
coming to an end and that interest rates could start rising in
the U.S., which in turn is bullish for the U.S. dollar," Paul van
Eeden, president of Cranberry Capital, a private Canadian holding
firm, said in an email.
Hawkish members of the Fed suggested that QE3, the third round
of quantitative easing, could be tapered or ended possibly this
year before the labor market outlook improves.
"If markets do not expect the Fed to stay the course, then
expectations for economic growth and inflation will stay
depressed and demand for safe assets (cash and government
securities) will remain high," Paul Edelstein, U.S. economist at
IHS Global Insight, wrote in a media commentary.
"Counterintuitively, this means lower long-term interest rates,
Higher demand for dollar and risk-free Treasuries would drive
up the dollar's value and bond prices, thereby pushing down
"Already, the stock market is down 1% (suggesting weaker
growth expectations), gold is off 2.6% (suggesting weaker
inflation expectations), and the dollar is up about 0.7%
(suggesting stronger demand for safe assets)," Edelstein
Gold Miners Hit 2009 Low
Market Vectors Gold Miners ETF (
) nose-dived 4.8% to 37.49, its lowest level since August
Both GLD and GDX have fallen deep below their 50- and 200-day
moving averages, indicating a very strong downtrend. But some
analysts see them as oversold, which makes them prone to sudden
snap-back rallies on bargain buying as well as short covering, in
which traders have to buy shares to close their short
"Gold is very oversold and likely near an intermediate-term
bottom, and stocks are likely at or near an intermediate-term
top," said Harry Dent, founder of economic research firm HS Dent
in Tampa, Fla. "There could be a surprise move down of 8% to 10%
in stocks and a rally in gold over the next few months."
U.S. stocks have reached fair value on a near-term basis now
that the S&P 500 is trading at 13.8 times earnings in the
face of slower profit growth, according to Alec Young, global
equity strategist at S&P Capital IQ. He believes the positive
news out of the U.S., Asia and Europe have already been priced
in, leaving investors to focus on fiscal and political risks, he
wrote in a client note.
The gold miners are now trading as though gold trades for
about $1,000 an ounce, presenting an excellent bargain-buying
opportunity, says Peter Spina, president of GoldSeek.com in
"The volatility is reaching an extreme here and likely to
reverse soon," he wrote in an email.
Spina believes the Fed has to continue quantitative easing to
support a "stagnant economy." If the Fed pulled the plug, the
economy would contract.
"Our entire system is now built on this artificial money
printing, and I do not fall for this idea this will end," Spina
said in an email. "A stagflationary economy is developing, which
will continue to see money printing used to keep the game
"The market fundamentals remain strong and I believe nothing
changes in the long-term picture, even if this short-term
pullback damages the psychology of traders," he added.
"Yes, it looks scary if one doesn't understand the
fundamentals. But the whole complex of investments are selling
off due to the measly $85 billion sequester (government spending
cuts)," Victor Sperandeo, CEO of EAM Partners and Alpha Financial
Technologies in Grapevine, Texas, said in an email. "Meanwhile,
with $225 trillion in debt around the world, if the crash comes,
gold will survive and stocks will drop. So gold is a better
fundamental play in the long run. Borrowing and printing are
death in the long run."
Silver prices dropped 3.1% to $28.64 an ounce.
IShares Silver Trust (
) skidded 3.0% to 27.59 -- a six-month low -- in more than double
Silver Miners ETF (
) plummeted 4.8% to 18.36 -- its lowest price since August.
Both SLV and SIL have tumbled deep below both their 50- and
200-day moving averages, typical of a strong downtrend, but are
also seen as oversold by some measures. Platinum and palladium
fell about 3% each.
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