Federal Reserve Chairman Ben Bernanke offered grim hope for QE3 to occur this year with what was previously thought to be almost a guarantee by some analysts. This news is largely seen to be the reason why silver and gold stocks took a hammering on Wednesday, February 29.
Gold and Silver Stock Fall
Precious metal stocks fell across the board. iShares Silver Trust (SLV) closed down 6.36% at 33.55 whereas SPDR Gold Trust (GLD) saw 5.31% wiped off its stock value, closing at 164.29. Silver miners didn´t do as badly as some ETFs. Paan American (PAAS) recorded a loss of 4.3% meanwhile the largest silver miner in the world, Silver Wheaton (SLW) was down 3.8%. Like silver miners, gold mining companies saw similar losses, while similarly again, not seeing as heavy losses as the industry ETFs. Barrick (ABX) was down 3.50%.
Why gold and silver prices will still rise
Put simply, very little has changed regarding the actual state of the global economy. The USA has announced better than forecasted job number gains and the economy has grown quicker than was expected. However, the United States is still verging on 100% of GDP levels of debt, currently standing at around $15 trillion. It is also worth noting that just because QE3 will probably not happen now in 2012, it will likely happen sooner or later.
Add to this the Eurozone crisis is far from showing any sign of abating, despite the Greek bailout, which all in all was basically a glorified stay of execution for the Greeks. Spain´s economy is showing no signs of improving. Indeed, national debt levels are soaring, unemployment stands at 20% while the new government is facing almost daily protests in all major Spanish cities at austerity cutbacks.
Italy has virtually no hope of crawling out of their 120% debt covered mess any time soon while Ireland and Portugal go about attempting to deal with their own austerity programs while simultaneously looking to galvanize their respective economies in some way. The Irish for one have also to contend with the very real plight that is prevalent now; approximately 1,000 young Irish people are leaving Ireland for work abroad. The Eurozone crisis will continue to push precious metal prices up in the long run.
The US will continue to struggle with its colossal debt levels while maintaining unemployment number reduction which will prove to be difficult for the government, in large part due to the national debt. Precious metal prices will likely fall further, however, with such a correction and the overwhelming number of global economic factors that point to a steep precious metal rise, we will see considerable investment in gold and silver stocks, driving prices back up.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.