The precious metals market just recorded one of its worst performing week in years. The price of gold tumbled down by 7% and silver by almost 13%. I could go over the main reports of the week (and I will) but it’s hard to blame the reports on such a plunge in prices. Even the developments in the forex markets including the depreciation of the Aussie, Canadian dollar and Japanese yen against the USD could account for the plummet of gold and silver prices during last week. The main issue has to be the sharp shift in the market sentiment towards gold and silver as safe haven investments and their role in many investors portfolio. I think the tipping point has come. It’s hard to pinpoint what was the catalyst: Perhaps Goldman Sachs negative outlook on gold, the latest minutes of the FOMC meeting, or the Bank of Japan’s decision to augment its asset purchase program. In any case, it seems that investors have become fed up by: The poor performance of precious metals in the past couple of years, the unrealized concerns about the inflationary pressures that are stem by the Fed’s asset purchase program, the rally in the equity markets, and the resilience of the US dollar against leading currencies – mainly because other central banks have also been “printing money” including BOJ and BOE or because of the weakness of other economies such as Euro-Area. I think this market shift might keep gold and silver from recovering anytime soon. And short of another major event in the financial markets (e.g. another Cyprus like crisis or the Fed augmenting its QE3 program) I think the weakness of precious metals will persist.
Let’s turn to see the main events of last week: According to a recent report, U.S housing starts sharply rose in March by 7%; U.S CPI declined by 0.2% in March while the core CPI inched up by 0.1%; Philly Fed index for April slightly fell to 2; number of jobless claims slightly rose by 4 thousand to reach 352 thousand. These reports didn’t show much change in the U.S economy and thus may have had little effect on the financial markets. Bank of Canada left its short term interest rate unchanged at 1%. This news didn’t help the Canadian dollar from falling by 1.3% during the week against the USD. Moreover, during last week, the Euro declined by 0.47% against the USD. The Aussie dollar sharply depreciated against the USD by 2.20%.
Here is a short recap of the developments in precious metals prices between April 15th and April 19th:
Precious Metals Recap:
Gold price plummeted during last week by 7.04%; moreover, during the week, the average weekly price reached $1,383.4 /t. oz which was 11.12% below last week’s average rate of $1,556.5 /t. oz. Gold ended the week at $1,395 /t. oz.
Silver, even more than gold, tumbled down during last week by 12.8%; further, the average weekly rate decreased by 14.78% to reach $23.30/t oz compared to last week’s average $27.34/t oz.
During last week, the average daily percent changes of gold reached -1.363%; silver had an average daily change of -2.6%.
The chart below shows the developments of precious metals, as their rates are normalized to 100 as of April 12th. Gold and silver prices tumbled down on the first day of the week.
The second chart presents the daily percent changes of bullion rates (or in other words the changes around the trend). Silver and gold plunged on Monday. Precious metals prices daily percent changes ranged between 2% gain and 11% drop.