Gold Price and Silver Price: the week till 18/05 in review

The gold price saw a decline of more than 3% during the first half of  the week. It touched the lowest point since beginning of this year during Wednesday’s trading session, being 1.527 US dollar. The gold price bounced back during the last two days of the week to close on 1.587 US dollar and 1.241 euros on Friday evening. That’s a gain of half a percent week-on-week. The silver price followed a similar pattern. Silver closed the week on 28.65 US dollar per ounce and 22.48 euros, which is very similar to the close of one week earlier.

On Thursday and Friday, the downtrend in the gold price and silver price seemed to reverse. If this rally continues, we can conclude that precious metals are considered again safe havens in the eyes of investors. The gold price at the lows 1.500 dollars seem to attract a lot of buyers all over the world (as well investors as Central Banks). This needs to be validated though in the course of the next weeks.

BullionVault‘s weekly video review shows the most important news items affecting this week’s gold and silver price :

  • The Eurozone is not able to control its economic troubles. Spain is in a confirmed recession. 16 Spanish banks were downgraded by Moody’s. Greece was not able to form a government and is preparing for new elections on 17/06, obviously not a good thing for the stability in the country.
  • In the United States, the Fed meeting minutes had a less optimistic tone of voice than the previous ones. Clearly, the European situation is having a negative impact on the US. The Fed will consider additional financial stimulus in order to keep the recovery going as it’s losing momentum. That’s a clear hint towards additional QE.

We had very strong news about gold demand in Q1 of 2012. Gold investments were up 13% year on year (that’s an incrase of 38% in dollar terms). At the same time, China had an incredible increase in gold imports : a sixfold increase year-on-year.

In Eric King’s weekly metals wrap, Ben Davies shared his insights about the evolution in gold investment positions. Apparently, large commercials turned to very low amounts of short positions. That could be pointing to the end of the gold price correction, or at least a temporary one. Now if QE were to be announced, which would be very bullish for gold and silver because of its inflationary effect, we can be sure that Wednesday’s low was the bottom of the 9-month correction in the gold price. Just as a reminder of what happened in 2009 when the FED announced QE1 : the gold price rallied from 700 to 1.200 US dollar in a matter of months, a 70% increase. We are not saying it will happen again, but it shows the potential of such an event.

In technical terms, Dan Norcini points to an important change in the internal structure of the weekly COT reports. He says the hedge fund community and swaps dealers seem to be most bearish about gold since the the stock market crash in 2008/2009. This could set the stage for a serious short covering rally, which could have started on Thursday.

Dan adds to it that silver needs to go above the 30 dollar mark. Along with news from the Fed regarding additional stimulus, silver could attract speculative money to push the price strongly up.


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