Bears Slam Gold and Silver Prices

Gold and Silver prices sank to the cheapest levels seen since 2010. Cash bullion is seen heading for its worst quarterly performance since 1920. Economic data coming out of the U.S. yesterday all pointed to a stronger growth pattern, which pushed the US dollar higher, weakening Gold and Silver prices in bargain.

US house prices had their biggest rise in seven years, while consumer confidence jumped, according to official figures. A stronger dollar and expectations that quantitative easing will be scaled back are wreaking havoc on the precious metals markets. Investors have been selling gold from exchange-traded products at a record pace since the beginning of this year.

Assets in the SPDR Gold Trust (GLD), the largest bullion-backed ETP, fell to 969.5 metric tons yesterday, and are 28% lower this year. This is the first time since February of 2009 that the fund’s gold bullion holdings have reached this level. Total ETP holdings are heading for a sixth monthly contraction, & have declined by 533.3 metric tons this year alone. As expected on the trend, Investment banks like Goldman Sachs, UBS and HSBC among many others have promptly cut their forecast on Gold and Silver prices.

Comex Gold slumped over 4% to $1223.5 and Comex Silver crashed further by more than 5.5% to $18.39. Crude oil declined to $94.30 a barrel after an industry report showed stockpiles in the U.S. remained near the highest level in more than 30 years. Even with the support derived from the sharp depreciation seen in the Indian Rupee (INR) of over 1.10% against the US dollar, MCX Gold for August delivery has hit a low of Rs. 25,758 till now and MCX Silver declined sharply to Rs. 38,825 at the time of writing.

Physical Gold demand from India, the world’s largest gold consumer, is now expected to remain subdued owing to a number of anti-gold measures taken by the government in an effort to reduce a record current account deficit.

Silver prices tend to be more volatile than Gold:
Silver has lost a third of its value this quarter, while also being the worst performer in 2013 on the Standard & Poor's GSCI Spot Index of raw materials. Bargain hunters are picking up silver coins and buying the metal since it has dropped in value about 20% since the beginning of the year. Silver belongs to both, the precious metals and industrial metals groups, which also makes the metal susceptible to more volatility and sudden price swings.

China pumps Liquidity into Markets – Can support Metals and Silver Prices:
The People’s Bank of China has provided liquidity to some financial institutions to stabilize money-market rates, according to a release yesterday. The statement is the first public confirmation of central bank action to ease a crunch that sent the overnight repurchase rate to a record last week. Premier Li Keqiang is seeking to wring speculative lending out of the banking system after credit expansion outpaced economic growth. Even though China continues to grow in “double digits” it has had a series of weaker economic reports that point toward weakening growth. Domestic demand remains soft and the economy also remains weak compared to what it has been in the past. Manufacturing continues to shrink because of oversupply and the rate of return on investing in the sector also continues to get smaller. For this reason a strong rebound in the Chinese economy seems difficult but not impossible. Continued growth in China as well as other emerging economies can trigger demand for metals & silver leading to higher silver prices. But growth rate in India & Brazil have, in fact, slowed down, complicating things for the emerging markets industrial demand for silver. India’s economy has recorded its slowest growth in the last decade.

Mining Industry hit hardest on Lower Gold and Silver Prices:
Anything below $1,400 an ounce is sort of a red line for South African gold producers, No one has more to lose from gold’s bear market than South African producers as workers digging in the world’s deepest, costliest mines threaten to bring them to a standstill unless pay is more than doubled.

A record quarterly drop in the metal to as low as $1,270 an ounce is already below production and capital spending costs at Sibanye Gold Ltd., Harmony Gold Mining Co. and Gold Fields Ltd., figures compiled by Bloomberg show. Harmony’s South African output costs are the highest of the world’s 12 biggest producers by volume.

Surging militancy among workers threatens to erupt into violence in the runup to wage talks in mid-July as labor unions dig in for increases that could overwhelm companies’ profits. Strikes and related violence at mines last year that left at least 44 dead knocked 0.5 percentage point off economic growth, according to the National Treasury, and led to pay gains for some of about double the pace of inflation. The falling gold price, writedown and scrutiny of its disclosure by Australia’s stock-market regulator have pushed Newcrest shares down 52% in less than three months, the most among precious metals mining companies with market values higher than $1 billion, data compiled by Bloomberg show.

When Gold and Silver prices may hit the bottom and rebound, seems very difficult to tell in the current questionable circumstances, where all Fundamental and Mining Logic is completely sidelined and even the upside triggers have pushed bullion down, but that day doesn’t seem very far away.