Gold and silver prices battered lower in liquidity panic

During yesterday’s trading session precious metal prices were battered lower, as the markets reacted negatively to the – perceived – ongoing inertia at the Fed and European Central Bank. Many investors are worried that these banks are being too reserved in their approach to the threat of deflation. More and more voices are calling for an expansion of the Fed’s bond purchasing programme. The US dollar is currently benefitting the most from this situation, as its external value continued to rise in relation to other important currencies. The euro slipped below the 1.30 mark in relation to the dollar, and experts predict that the European currency will continue drifting lower.

Last week’s meeting in Brussels was supposedly aimed at finding a lasting solution to the European sovereign debt crisis. Nevertheless, this week major credit rating agencies stated that existing policies were not going to soothe the financial markets. Moody´s Investors Service and Standard & Poor’s warned Brussels of a possible downgrade of some of the eurozone members. Many investors have lost their faith in politics and don´t believe that the euro will be saved. The yield on 10 year Italian bonds continued to rise, even though late this summer the European Central Bank started buying large amounts of Italian and Spanish debt. The devaluation of the euro is curbing the development of dollar-denominated precious metal prices.

Yesterday the gold price plunged down to $1,550 per troy ounce. Technically oriented investors see very strong support around this region, which could offer some stability to the gold price. However, this continuing consolidation offers an excellent opportunity to buy gold at a cheaper price. Despite yesterday’s dramatic sell-off, none of the fundamentals that have been driving the bull market in gold have changed.

The silver price also was under strong sales pressure, dropping underneath the psychologically-important mark of $30 per troy ounce. In late summer technical analysts had already warned that the white metal would continue to drop and could possibly fall as low as a range between $20 and $24. In today’s early Asian trading, the silver price continued its descent, dropping as low as $28.10 per ounce.

Likewise, platinum and palladium are not immune to this downward trend in the commodity markets. This morning the platinum price slipped to $1,380 per troy ounce, while the palladium price kept oscillating between $614 and 618$ per ounce. Market participants are still convinced that more bad news and growing deflationary risk will spur the Fed into announcing a third-round of quantitative easing. Should this be the case, other central banks will probably also resort to further electronic money printing in order to flood the financial markets with liquidity. This should be of great benefit to stocks and precious metal prices.