Despite a weakening dollar, gold and silver prices plunged
sharply Tuesday -- breaking below key price support levels -- as
lawmakers failed to make progress over resolving the fiscal
Spot gold prices fell 1.19% to $1,696.60 an ounce.SPDR Gold
), tracking a 10th of an ounce of bullion, gapped down 1.10% to
164.30, a four-week low, in heavy volume.
GLD failed to break above its key 50-day line, which is very
bearish. The next level of price support lies at the 200-day
moving average, 2% below current levels.
PowerShares DB U.S. Dollar Index Bullish (
), measuring the greenback against a basket of major foreign
currencies, fell 0.37% to 21.77, a six-week low. Gold prices and
the dollar usually trade opposite each other. A weakening dollar
normally increases prices of dollar-denominated commodities. UUP
is trading below both is 50- and 200-day lines, which indicates a
very strong downtrend.
Market Vectors Gold Miners ETF (
) fell as much as 2.6% at the opening before regaining all of its
losses. In afternoon trade, it was ahead 0.39% at 46.66. It's
trading below both its 50-day and 200-day moving average, which
indicates a strong downtrend.
"This correction isn't over," Tom O'Brian, CEO of TFNN, an
investment education firm, and editor of "The Gold Report" in
Clearwater, Fla., wrote in a client note Tuesday. "Both, the
physical metal, and the silver and gold equities, are now making
a run to their November swing lows."
Harry Dent, founder of HS Dent, an economic research firm in
Tampa, Fla., attributed the sell-off to traders taking profits
ahead of the fiscal cliff at year's end. He remains bullish on
gold on the expectation that China, Europe and the Federal
Reserve will undergo more economic stimulus. He is looking to buy
gold if it falls to $1,660 an ounce.
Gold hasn't behaved as expected for Rich Winer, president of
Winer Wealth Management in Woodland Hills, Calif., with $20
million in assets under management.
"I had thought that gold would do well as a result of central
banks keeping interest rates low and implementing stimulative
policies," he wrote in an email. "However, since my initial
prediction, the dollar has strengthened and gold has not done as
The Federal Reserve's quantitative easing programs haven't
generated the inflation that the gold bugs expect. Although the
Fed has significantly increased the money supply, it's not being
circulated as intended.
Over the past two years, the monetary base -- which includes
currency in circulation and bank reserves -- has increased 21.1%
annually, according to Milton Ezrati. The market strategist at
mutual fund firm Lord Abbett wrote in a client note that banks
aren't lending and businesses aren't borrowing because of lack of
confidence in the economy. So the newly printed money isn't
circulating. Money circulating in the economy has grown only 7.9%
annually the past two years.
Gold prices failed to rise even after two Federal Reserve
presidents called for replacing Operation Twist, which expires at
year's end, with outright bond purchases.
Boston Federal Reserve Bank President Eric Rosengren said
Monday the Fed should buy a total of $85 billion in bonds each
. St. Louis Fed President James Bullard said $25 billion a month
Spot silver prices sank 2.26% to $33 an ounce.IShares Silver
) fell 2.00% to 31.87. It broke below short-term price support at
its 50-day moving average, which indicates weakness.Global X
Silver Miners ETF (
) plunged 2.4% at the open but reclaimed all of its losses the
rest of the morning. By the afternoon, it added 0.09% to 22.60.
It's trading below its 50-day line but above the key 200-day
line. So its short-term direction is indeterminate now.
Platinum and palladium also fell.
Don Vandenbord, a portfolio manager at Camarda Wealth Advisory
Group in Fleming Island, Fla., with $250 million in assets under
management, was stopped out of his position inProShares Ultra
Silver (AGQ). The ETF doubles the daily moves of silver.
"Preservation of capital is crucial when support is violated,"
he wrote in an email. He's looking for gold and silver to find
price support at their 200-day moving averages. He plans to buy
back his position at that level and use the 200-day line as a
"A look at the overnight chart in gold shows a huge spike in
selling during a typically light-volume period, which indicates
that 'somebody' is trying to drive the price lower," Vandenbord
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