Gold and silver prices sunk to their lowest prices in and 4½ years overnight, as the improving US dollar and predictions of upcoming stimulus programs by major world economies applied more pressure to the ailing commodities.
The traded contract that has seen the most activity – Gold for December delivery – was bringing $US1145.70 per troy ounce at the close of markets, which was down 1.9% from the previous day and now sits at a price which it has not been at since the 22nd of April 2010.
The contract for silver settled at a price of $US15.439 per troy ounce at closing, down 3.2% for the day, making a slight recovery from its low point of $US15.120 for the day, which was the lowest point the commodity had been at since 10th February 2010.
Japanese News Causes A Spark
Comments from Bank of Japan Governor Haruhiko Kuroda appeared to set the wheels in motion for the day’s losses, after he defended an increase in purchases in the Japanese economy and pledged to spark growth in the local economy and eliminate deflation pressures.
What this means effectively is that Japanese and US financial policy are now going in different directions, as the Japanese look to loosen things up a little while the US has one eye on an increase in official rates in 2015.
The US Dollar Reacts And The Gold Price Suffers
The news out of Japan set the US dollar off on a higher trajectory against the Japanese yen and other currencies, which produced a knock on effect to precious metal prices, as they are priced in US dollars and therefore become more expensive for foreign investors to buy once the US dollar becomes stronger.
More News To Come
Gold investors will find themselves with more anxious moments in the coming hours and days, as the European Central Bank (ECB) meets on Thursday to discuss its monetary policy, and the US Department of Labour will make an announcement on non-framing payrolls on Friday.
Some analysts believe the ECB is moving towards stimulus measures which would strengthen the position of the US dollar against the euro, with would see gold and silver taking another hit.
Additionally strong wage figures expected out of the US would increase investor’s belief that a rate rise will be announced in the future from the Federal Reserve, and perhaps sooner than expected. This would also send the US dollar in an upward direction.
What Next For Gold And Silver Prices?
The strengthening of the US dollar has a significant impact on gold and silver as their prices are tied to it. With more positive sounds coming out of the US there is a broad consensus that things might be improving in America, and an interest rate could occur in the US before the end of the second half of 2015. With Europe seemingly having its handful with its own economies, the euro is unlikely to come to the rescue anytime soon.
Not helping matters for silver is the slowing growth of the major economies of China, Europe and Japan, which use silver for their industrial applications. And with gold now down 17% from its highest price of the year, which was attained in March, some analysts believe the downward trend for both commodities will continue, perhaps by another 5-10%, as investors nervously wait and watch on for the price decrease to halt.