There appears to be a price war on precious metals at the moment. The Asian market is intent in bring prices down whereas the Wall Street needs to buy. It’s making a rollercoaster of the market and presenting traders with prime opportunities to make short-term gains.
Gold prices were dragged to almost $1305 an ounce before the stalls open in Wall Street at 8am EST. The European market also seems happy to keep things on an even keel. But by midday in New York, prices were back up to $1315.50 with a massive price hike in the space of the 30 minutes. Most US traders were still having their morning coffee!
So why the price wars? Traders in the US favour gold right now because of the unrest in Iraq and the weakness of the US dollar. Janet Yellen, chairwoman of the Federal Reserve has indicated bank interest rates will not be lifted for some time – and market analysts are predicting that will be at least a year.
Market speculators have subsequently lost faith in the dollar market and have turned their attention to precious metals instead. Interest rates do not support gold like they do currency backed assets, but whilst interest rates are not yielding anything on equities there is no profit to be made in equities.
China wants default currency
Economies in Asia on the other hand are looking stronger and China has been angling after implementing the Yuan as the World’s default currency for some time now. Since 2009, the Republic has been buying massive quantities of gold to back their currency.
Although the US still holds more gold, the greenback is looking very fragile given the amount of debt the US is carrying. It’s only a matter of time before the ceiling collapses and the dollar is officially declared worthless even though economists already know this.
Both China and Singapore are calling for the Asian markets to separate itself from the western marker so they can set the gold price benchmarks. Following the Barclays scandal where one trader was singled out for fraudulently fixing gold prices, the entire financial community has lost faith in the system and want tighter regulatory scrutiny.
It seems however, that the regulatory body will be kept in the west and handed to an independent company. This is not sitting well with the Asians who quite rightly still suspect there will be favouritism shown to western traders.
By pulling gold prices lower at a time when they know US traders need to buy, the dealers in the Far East can make some easy short-term gains when Wall Street puts the prices back up. Given China and India are the biggest consumers of gold in the world they are not short of interested parties buying and selling.
If you have the funds to buy gold in huge quantities, you too can make some short-term gains during the price struggle. Otherwise get in early and invest in gold before Wall Street traders put the prices back up.