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Gold And Silver: A Psychology-Driven Bear Market

By CommoditiesMay 27, 2014 09:10AM GMT Add a Comment
 
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Gold is the only commodity where physical annual demand is only a tiny fraction of total supply available and shortages of gold caused by physical demand never happen. For this reason, the price of gold is almost entirely dependent on psychology and the factors that drive psychology, such as inflation and the dollar. Despite all that, we still see analysts writing lengthy reports analyzing factors with zero predictability, such as jewelry usage and annual gold production.

The strong relationship between silver and gold makes it mandatory to study and understand both precious metals together. Despite recent attempts to go higher, both metals (and almost any commodity) remain in a falling market since 2011.

Gold Daily Chart
Gold Daily Chart

Gold and Silver prices since 2013

We already commented in February that the price increase in the beginning of the year were likely to fail. We recommend that buyers follow the trend and not worry about normal price fluctuations. We expect both precious metals to remain at low levels and we wouldn’t be surprised to see them recording new lows.

The performance of the US Dollar Index will give good clues on where these two metals will head through the rest of the year. The US dollar remains relatively stable and unless the dollar falls to new lows, we don’t expect silver and gold prices to mount a comeback.

What This Means For Metal Buyers

Silver and gold prices keep weakening, remaining in a falling market. The current picture tells us that we could see more of a downward slope. We believe that there is no need for buyers to take long-term positions. In a falling market, it makes sense to wait for bullish signals before making early decisions.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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