iNVEZZ.com, Tuesday 17 September:
In the recent financial world shaped by central bankers, precious metals are swinging like a pendulum between the emotional poles of euphoria and panic. Gold and silver were in vogue after the recent recession as cheap-money from quantitative easing fuelled speculation of hyperinflation and devaluated the US dollar. Commodities peaked in 2011, following the culmination of the Arab Spring and the death of Osama bin Laden, marking the end of ‘’fear’’ trade. Since then the US dollar has been the strongest currency across the board, with the Fed deciding not to expand its monetary base and launching ‘Operation Twist’. Despite the US central bank agreeing to increase its quantitative easing programme last year, precious metals did not continue their long-term uptrend and found three-year lows in June 2013. The downstream was prompted by the rise of US real rates as Treasury yields recovered from record lows and inflation expectations remained subdued.
On the eve of the widely anticipated FOMC meeting, investors are puzzled by the precious metals outlook and what effect a potential tapering announcement might have on prices of precious metal commodities. The conventional market interpretation is that as the US central bank shifts policy away from expansion of the monetary base, the artificial support for precious metals will diminish.
The market dynamics over the last 2 years have remarkably resembled the asset kinetics from 1987 to 1989. Silver has been the emotional proxy of the commodity sector, with its May 2011 top preceding the all-time peak of gold spot prices in September 2011 similar to 1987. The S&P 500 collapse in August 2011 mirrored the 1987 panic and gold peaked around the stock markets’ bottom in both cases. Since then the S&P 500 has recovered across similar momentum(RSI) fingerprints and surged to an all-time high, while precious metals have been in a volatile downtrend analogous to 1989(see chart below).
*Please note that all charts in this article are from last Friday.