Improving signs in the US economy saw precious metal prices fall below the $1300 an ounce threshold last week, and with more signs the global economy is getting stronger, market analysts expect further price cuts for precious metals.
Gold bullion is down by 55 per cent from the same time last year and despite lower than predicted non-farm payroll figures, trader’s confidence is returning to riskier assets. Not even continued violence in Ukraine, Iraq and the West Bank could dampen spirits in the stock market.
But US economic data has been a mixed bag of late with sure signs of strengthening in manufacturing and consumer confidence, but a weak housing market. Although the nonfarm payrolls, a yardstick for the US economy, was 21,000 less than expected, the industry still pulled in 209,000 jobs which is a good return nevertheless.
Second guessing the Federal Reserve
Analysts however are still uncertain whether the Federal Reserve will increase bank interest rates earlier than expected. Money managers still feel the policy makers will want to see consistently high numbers before they make a move on inflation.
The major concern is that salaries have only shown a 2 per cent increase over the last 12 months, which plays into the hands of the Federal Reserve to keep interest rates low to avoid inflation. Until an announcement is made, traders will play the gold game safe and make sure they have their pockets filled.
A hike in interest rates will put pressure on gold and silver prices as precious metals do not benefit from interest rates in the way that currency investments do. Precious metals always fair better during times of economic and political crisis. A fall in gold prices now is good news for investors as the value will increase dramatically in the next financial collapse.
Investors discounting higher rates
Some analysts however are anticipating higher interest rates to come in sooner than June 2015 and have been behaving bearish this week which resulted in falling precious metal prices.
Although demand in China was weak last week, the gold market is attracting investors in South-east Asia and with the wedding season due to start in September consumer demand in India will be high over the coming months which could cause prices to hover around the $1300 an ounce price point.
However, interest in precious metals has waned in Europe now it is apparent the failings of Portuguese banking conglomerate Espirito Santo will not affect the health of the Eurozone’s financial system despite a 6.6bn bail-out.
Many countries of the Eurozone, particularly Spain and Italy are still reeling from the effects of the 2008 banking crisis, but is being propped up by the strengthening triumvirate economies of Germany, France and the UK which will weigh on gold prices.
Precious metals are looking good value for money at the time of writing and are expected to fall further this week. Some analysts are even predicting significant drops this quarter , but with geopolitical uncertainties firing on three fronts, the likelihood of greater prices cuts are remote. Buy now whilst prices are below $1300.