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.
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.