Gold, Silver Confirm Downtrends; Now Oversold?

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Investors melted down their gold and silver bets Friday as the dollar rallied on relief that the country didn't dive off the fiscal cliff and worries that the Federal Reserve will turn off the printing presses sooner than expected.

Both precious metals fell below their key 200-day moving averages, confirming a strong downtrend. Traders' reactions to the weekly unemployment report also fanned the day's volatility.

"The Fed minutes knocked some of the gold bulls off of their pedestals and gave some badly needed confidence to the beleaguered dollar," Timothy Evans, chief market strategist at Long Leaf Trading in Chicago, said in an email.

In afternoon trade, gold futures prices sank 0.70% to 1,653.10 an ounce.

SPDR Gold Shares ( GLD ), tracking a 10th of an ounce of bullion, fell 0.75% to 159.99. It's been stair stepping lower and has formed two lower highs and two lower lows since peaking in October. Its break below its 200-day line Friday shows severe weakness.

Market Vectors Gold Miners ETF ( GDX ) skidded 0.93% to 44.72. It's been consolidating below its 200-day line for about two months.

Waverly Advisors of Corning, N.Y., re-entered its short position in gold following Thursday's 1.2% drop.

Victor Sperandeo, CEO of EAM Partners and Alpha Financial Technologies in Grapevine, Texas, attributed the weakness in gold to rising lease rates, in which central banks loan their gold out to profit from a yield. Since December gold lease rates climbed from a negative 0.20% a year to 0.37% a year.

Evans of Long Leaf bought gold Friday when it fell to $1,640 an ounce on the belief that it's oversold and that the selling momentum waned as gold fell to its Dec. 20 low.

Christopher Blasi, president of Neptune Global Holdings, a Wilmington, Del., precious metals dealer, saw increased demand for bullion as prices fell.

"The heavy physical off-take probably helped in keeping gold above support at $1,625.00," Blasi observed. "If support at $1,625.00 gives way, look for a move down to $1,610.00. A break below $1,600.00 would be significant with the possibility of the metal dropping sharply to $1,485.00."

Silver Dulls

Silver futures prices fell 0.53% to $30.04 an ounce.

IShares Silver Trust ( SLV ) tumbled 0.69% to 28.98 in heavy volume. It failed to hold above its 200-day line when it broke above it earlier this week. It fell below that key line Thursday, showing severe weakness.

Global X Silver Miners ETF ( SIL ) gapped down 1.63% to 22.83. It hit resistance when it tried to break above its 50-day line earlier this week. But it trades above its 200-day moving average, indicating a weak uptrend.

The precious metals bulls continue to see sell-offs as chances to buy cheap.

"The eight largest central banks of the developed economies are all following expansionary money printing policies and systemic risk in the world's financial system not only remains but is growing," Mark Thomas, founder of Silver Price Advisor , wrote in an email. "That hasn't changed because of some minutes from a Federal Reserve meeting being released."

Dollar Strength

PowerShares DB U.S. Dollar Index Bullish ( UUP ), measuring the greenback against a basket of major foreign currencies, rose 0.18% to 22.03 -- a one-month high -- as the yen continued to crumple on speculation of more monetary easing in Japan. The island nation's new government is deliberately debasing its currency to juice inflation in its stagnant economy.

CurrencyShares Japanese Yen Trust (FXY) dropped 1.02% to 111.22, a new 2-1/2-year low Friday. It's tumbled 10.13% in the past three months.

CurrencyShares Euro Trust (FXE) shed 0.03% to 129.54.

The dollar has appreciated for eight sessions straight. Its strength intensified Thursday after the Federal Reserve's minutes indicated some of its members want to end its economic stimulus program before year's end.

If the Fed turns off the printing presses, the dollar would appreciate as fewer of them would be in circulation. It would also suggest the economy is improving.

"Longer term, who's kidding who? The Fed cannot stop QE, due to this vicious cycle," Don Vandenbord, a portfolio manager at Camarda Wealth Advisory in Fleming Island, Fla., with $250 million in assets under management, said in an email. "An end to QE would stop the artificial cap on interest rates, and as they take off to the upside, the U.S. government would not be able to afford to pay the higher interest rates on its debt; the fed demand would be needed to lower the rate, via QE."

Maintaining QE is more likely despite opposition from some members because of the poor employment recovery, according to Waverly Advisors.

"Today's employment data release for December came in at 155,000 vs. (an upwardly revised) prior 161,000 gain," Waverly wrote in a daily client note. "Meanwhile, the headline unemployment rate expanded from 7.7 to 7.8% for the month, still well above the Fed's 6.5% target."

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 Nasdaq, Inc.

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

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