Precious Metal Prices Down As Rally Ends

Last week’s surge in gold and silver prices came to an end on Monday as traders capped purchases despite escalating violence in Iraq. Consumer demand has also slackened since precious metals were pushed beyond their respective psychological boundaries last week.

Gold and silver enjoyed an intense rally last week following announcements by the Federal Open Market Committee. Janet Yellen, chairwoman of the US Federal Reserve, told reporters that interest rates would not be lifted for some time.

As a result, together with the Iraq crisis, traders backed precious metals as a hedge and with a view of making some short-term gains. Gold leapt from $1250 two weeks ago and is currently selling at $1310.60 per troy ounce.

What next for gold?

It remains to be seen whether there will be any additional gold purchases in relation to the Fed announcement, but gold is likely to be supported by events in Iraq over the coming weeks. The unrest allows traders to make some quick gains.

Consumers on the other hand have lost interest in gold and demand for physical bullion has weakened since last week’s price hike. It is likely consumers will stay patient and wait to see what happens with prices. After the Ukraine crisis was resolved gold prices dipped quickly and the same is likely to happen again.

The violence in Iraq however does not look like ending any time soon. The Sunni insurgents have strong backing and have captured another important stronghold close to the border with Jordan.

Iran and the United States are making noises in support of the Iraqi government but have been slow to react. Furthermore Iran’s supreme leader, Ayatollah Ali Khamenei accuses the US of self-interests in Iraq. Not a good start from would-be allies, but a good opportunity for investment banks to cash in on gold.

Inflation supporting silver

The Federal Reserve is taking some criticism by stalling on a decision to increase interest rates. Many analysts think policy makers should show more aggression, but Yellen says they do not want to force the US economy and create bubbles that will explode.

Silver prices have accelerated as quickly as gold and currently boasts a price point of $22.775 an ounce, a 6.2 per cent surge in little under a week. Precious metals are also being supported by higher oil prices stemming from developments in Iraq.

An unwinding of commodity financing in China last week also prompted a surge in precious metal purchases from Asia and Wall Street, but the market has calmed down in early trading on Monday with fears the rally was moving too quickly.

It is likely prices will not change a great deal this week ahead of important economic data due to be released in the first week of July. Much will ride on how events in Iraq unfold and how much military involvement the US has attempting to curb ISIS.

The US economy however is expected to show continued signs of growth and there is a possibility strong data will offset purchase gains from Iraq. For the latest deals on gold and silver products head over to today.