This week has been anything but positive for gold and silver as they opened up on Monday with declines that have continued into Thursday. None of this news comes as much of a surprise once investors take a look at just how unwelcoming worldwide economic conditions have been for precious metals recently. The US Dollar has been putting immense downward pressure on precious metals as it continues to gain value in comparison with other world currencies, especially the Japanese Yen. To that end, Japanese stock markets (as well as the US stock markets) have been doing so well that they have caused investors to no longer need or seek out safe-haven assets such as gold and silver. Inflation is being kept low in many nations promoting easy monetary policies and this is yet another factor working to devalue both gold and silver. With losses on the week eclipsing $80 for gold and over a dollar for silver, the closing numbers on Friday are shaping up to be incredibly disappointing. The only shimmer of hope left is that the decline in value we are experiencing will spur demand in places of the world that have been shying away from metals as of late.
The term “quantitative easing” was likely foreign to just about everyone not too long ago, but now it has become part of our everyday vernacular. It started with the United States and more recently a slew of other countries have been implementing similar tactics. This monetary policy works to devalue a nation’s currency as to make exports cheaper and thus spur economic activity, especially if the economy in question is struggling or failing. It seems as though the US economy has recovered a fair bit from the 2008 recession; enough to make QE no longer necessary. This news has been circling all week and it is gaining credence as the week wears on though it is still unclear as to when this monetary policy will be brought to an end.
Japan is devaluing their currency more aggressively than any other nation and this has caused a surge in the value of Japanese stocks, something that has hurt gold and silver as of late. Though we are in tough times as far a precious metals are concerned, market experts believe that the inundation of countries employing easy monetary policies will eventually turn into a positive factor for precious metals. You see, the two main things keeping gold and silver down and declining are stock markets and the US dollar. One or both of these factors needs to stop gaining value in order for precious metals to begin their recovery process.
Though demand for physical gold is not enough to cause the enormous upswing in value that precious metals owners would like to see, the lack of it is definitely contributing to the metal’s collective collapse. Around this time of year Asia has been known to purchase gold and silver more so than just about any other time of year, but this time around such is not the case. This lack of physical demand is further pushing the idea that investors do not need to worry about safe-haven assets. There is no real indication of whether demand will improve, but so long as the price of gold and silver continues to fall, it seems as though an increase in the demand for precious metals will be inevitable.
Closing Out the Week
As we begin to close out this week, precious metals investors should prepare to see final losses for gold nearing $100. As of the midway point on Thursday gold was down around $80 on the week while silver’s losses have accumulated over $1. Barring any major news story it is unlikely that gold and silver will be able to make anything even close to a full recovery.