Even though gold and silver continue to show bearish signs, the intermediate term may bring different paths for each metal. Let's take a look at what is presently influencing the price of each metal and where I expect them to go in the short and long term.
In India, investors are expecting gold to continue its lackluster journey until about mid April when sellers begin to stock up on gold for Akshaya Tritiya -- the second most popular gold buying holiday in India, May 13. Indeed it is the world's largest gold buying country and has been discouraging imports because of the battles it has with account deficits. Earlier this year it raised import duty on gold by 50% to 6%.
Is there any good news that can come out of Cyprus? The banks lose, large depositors lose, the political establishment loses, and even gold prices lose. As gold continues to struggle, the news that Cyprus and the ECB found a solution to the Cyprus' financial woes did not sit well for its price. As the ECB announced that it would do everything within its power to preserve the country's currency, the yellow metal quickly lost interest as a sudden need of a safe haven. The reason there was short lived interest in gold to begin with is because of the possibility of the whole banking system in Cyprus collapsing and causing the country to have to leave the European Union. But that's not the case anymore.
Gold is set for its first back-to-back quarterly loss since 2001 and it will continue to struggle because the U.S. economy continues to show signs of improvement and investors are turning their attention toward stocks and away from precious metals for security.
Gold prices in bed with the U.S. Economy
Could the price of gold be tied to the progress of the U.S. economy for the next 18 months? In my general observations this could be precisely what happens because it looks like Europe's struggle to recover could possibly continue even through 2014. If we just look at Spain as an example, the projections are nothing to become overjoyed about. In a report by the Bank of Spain, the country's economy was projected to stay in "recession" this year and contract up to 1.5%, which is three times what was originally thought. Next year the economy is expected to rise about .6% (nothing to applaud) but the average household has heavy debt and consumer buying will remain subdued. The country continues its austerity cuts but the budget deficit is likely to remain about 6% of GDP this year and drop only to 5.9% next year. Considering the European Union wants Spain to reach a target of 3% deficit next year it doesn't look too promising. For this reason I do not see gold prices being tied to good economic news coming out of Europe. If anything gold is going to look at the U.S. economy for signs of where its pricing will go. If we have a hiccup in our recovery, I would expect gold to react favorably and increase in price.
It is tough right now for investors to consider putting money in gold. I believe in the next few months gold is going to continue to consolidate. The only possible catalyst that I can see lifting gold this year would be if the continued economic improvement fueled inflation, otherwise I don't see any long-term catalyst, at least not right now. Upbeat U.S. data continues to take the fuel out of gold as a needed safe haven. Investors interested in making money are exploring equities, which are going up right now while gold remains flat. Until we get some inflationary pressure don't expect a whole lot of long-term price movement in gold. In fact, the SPDR Gold Trust Shares (GLD) is in such a decline, if one looks at the chart, it can see the stock using the 50-day moving average as resistance. This shows a strong long-term decline.
Silver Short and Long term
There appears to be mixed reactions for silver. In the short term silver appears to be like the plague, future traders are becoming more and more pessimistic and BNP Paribas cut its 2013 forecast for the metal from $31.35 to $28.45 an ounce through 2014. But there appears to be a divergence between gold and silver. The divergence is not so much in the charts as where the buying is going. While gold ETF investors unload, portions of the freed up money are being reinvested and precious metals and silver is one of the beneficiaries of this. This reinvestment hasn't reached proportions that a large inflow in the silver market can be observed, but investment could be speculation based upon news about continued economic growth. As most investors know, silver is not just a precious metal collected like gold, it has many industrial uses. It has been speculated by Michael DiRienzo, executive director of the Silver Institute, that the demand for silver for industrial use will soon soar to record levels as the global economy continues to heal itself. Even though there may be more of an opportunity for silver because of industrial uses, the silver ETF iShares Silver Trust (SLV) continues to move down like gold. But unlike gold, it looks like it may be building a foundation. In my observations I cannot say that this is the beginning of a turnaround for silver but I also believe Silver will probably remain in a consolidating range - bound pattern with a short term.
Precious metal investors interested in gold and silver should hold off investing in these metals right now. I am of the opinion that in the short term both stocks will continue to go down. Gold, as a security investment against an economic downturn does not make sense at this point. As a long-term growth investment it appears that there are better equity investments out there right now also. Silver appears to have a better chance of growth because of its industrial uses, but I don't believe this is something that can happen short term.