Greatest Threat To Gold And Silver Prices, Investors


Gold and silver prices melted down further Thursday as the dollar strengthened against the euro following disappointing European economic reports and officials disparaging the currency.

Spot gold prices fell 0.46% to $1,636 an ounce.

SPDR Gold Shares ( GLD ), tracking a 10th of an ounce of bullion, tumbled 0.54% to 158.20 on the stock market today . It tumbled to a seven-month low as it undercut a December low, opening the door to fall to its August low.

PowerShares DB U.S. Dollar Index Bullish ( UUP ), measuring the greenback against a basket of major foreign currencies, jumped 0.41%, owing to weakness in the euro.

CurrencyShares Euro Trust ( FXE ), tracking the euro against the dollar, dropped 0.74%. Data showed the eurozone's gross domestic product shrank 0.6% in the fourth quarter, missing expectations of a 0.4% contraction.

"The greatest risk to gold is a U.S. dollar rally," John LaForge and Warren Pies, commodity analysts at Ned Davis Research Group, wrote in a report Thursday.

What would make the dollar appreciate?

"Continued improvement in America's budget would help. The shrinking budget deficit over the last few years has had at least some part in stopping the dollar's fall," LaForge and Pies wrote. "The CBO (Congressional Budget Office) is projecting more shrinkage in 2013."

Improvements in America's trade balance would support the dollar. And historically the first years of a presidential cycle have been the strongest for the greenback. LaForge and Pies believe the dollar will go sideways. The dollar weakened under the first and second quantitative easing programs and it will likely lag commodity-based currencies such as the Australian dollar under QE3.

The bottom line: "A return of confidence in paper money, and the governments that print it, will likely spell the end of the secular gold bull story," they wrote.

Market Vectors Gold Miners ETF ( GDX ) rose 0.58% to 41.44. GDX trades below both its 50- and 200-day moving averages, which indicates a strong downtrend. It's fallen 28% below its 52-week high.

Julian Close of Market Intelligence Center listed gold miners as one of the "Five Industries to Get Out Of Now"  in a report Thursday.

"In the absence of a global financial meltdown, the price of gold will likely continue its current slow decline," Close wrote. "If such a meltdown were to occur, its price would likely fall farther and faster.

"The commodity trades at an enormous premium to its industrial value, and even at a premium to its decorative value," he added.

World Gold Council Q4 Report

Demand for gold reached a record dollar value in 2012, owing to strong appetites from central banks worldwide, according to the World Gold Council. Gold demand in dollar terms totaled $236.4 billion -- an all-time high -- last year, according to the WGC's fourth-quarter report released Thursday. Here are some other key facts from the report:

1. By volume, demand rose 4% in the fourth quarter from the year-ago period to 1,195 tons but fell 4% year over year in 2012.

2. Gold sold for an average of $1,669 an ounce last year, up 6% over the prior year's average.

3. Investment demand for ETFs , gold bars and coins fell 8% year over year in Q4.

4. Jewelry demand climbed 11% year over year to 525 tons in Q4.

5. Technology demand fell 3% to 101 tons in Q4 and down 5% for the year.

6. Supply from gold mines picked up 2% year over year, while recycling dipped 5% in Q4. Supply for 2012 stayed the same as 2011.

7. Global central bank buying increased 29% to 145 tons in Q4 and 17% for the year to 535 tons -- the most since 1964.

8. Demand from China rose 1% in Q4 and was flat year over year.

9. Demand from India spiked 41% year over year in Q4 but fell 12% for the year.

"Despite the turbulent macroeconomic climate throughout the year, as well as the regional uncertainties affecting India and China, the two largest gold markets, annual demand was 30% higher than the average for the past decade," Marcus Grubb, managing director at WGC, said in a statement.

Silver Prices

Silver prices dropped 1.2% to $30.42 an ounce.

IShares Silver Trust ( SLV ) skidded 1.23% to 29.41. It broke back below key support at its 200-day moving average, confirming a strong downtrend and is 19% below its 52-week high. Global X Silver Miners ETF (SIL) lost 0.96% to 20.43. It's also moving in a strong downtrend, having fallen below both its 50- and 200-day lines and trading 23% below its 52-week high.

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: FXE , GDX , GLD , SLV , UUP

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