Gone are the days when the precious metals were used as safe-haven investment amid global slowdown that began in 2008. A wide range of factors were responsible for the record rallies in precious metals.
Store of Value
In 2008, major economies were hit by one of the worst recessions in the global history. As a result of recession, investors shunned risk assets and attracted towards the precious metals, the trend consequently increased the prices to a record high. Gold hit as high as $1920 an ounce while Sliver printed the high of $49.80 in 2011—the era when the global slowdown was at its peak.
Weaker Dollar
In order to cope with the 2008 recession, the Federal Reserve of the United States took some extraordinary steps. The asset purchase program, commonly known as Quantitative Easing (QE) was one of the most significant emergency measures taken by the Central Bank which spurred huge selling pressure in the US Dollar.
Situation Changes
Last year the Federal Reserve began scaling back its whopping $85 billion per month asset purchase program which consequently spurred incited bullish momentum in the US Dollar (USD). The end of the QE has a symbolic significance that the US economy is growing in line with projections and it doesn’t require any stimulus. The Fed tapering decision spurred long term bearish momentum in precious metals, with gold sliding down to less than $1200 and silver plunging to even below its mining cost.
What Next?
Both fundamental and technicals are painting bearish outlook for the precious metals. We may see short term correction in gold and silver but in the long run both the metals are in downtrend. Gold is holding off the long term weekly trendline, thus selling the yellow metal around the $1280-$1300 resistance area could be a good strategy in the near future.
