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Consolidated Sell-Off To Flag New Era For Precious Metals, Equity & Bond Markets

|Includes: Kinross Gold Corporation (KGC), NEM

Precious Metals Futures tumbled sharply in heavy volumes after the Federal Reserve commentary on Wednesday, though not to Precious Metals Futures tumbled sharply in heavy volumes after the Federal Reserve commentary on Wednesday, though not to the same degree those traders saw in April.

Fresh, serious technical damage was inflicted in the precious metals markets Thursday, to suggest they will see still more selling pressure in the next session. For a first, all Financial Markets got evenly hammered out this time with sharp declines seen across Commodity, Equity & Bond markets. The sole point of difference this time that I see is that, this decline may be the last one for Precious Metals & Commodities which have seen downfalls since the start of this year & probably the beginning of a huge negative period for Equity & Bond Markets, where massive money inflows have been seen. The U.S. Equity markets are yet in an extremely over bought condition in stark contrast to the Precious Metals, where technical conditions are worse than over sold. Precious Metals have tumbled 23% this year, heading for the biggest annual drop since 1981, as some investors lose faith in gold as a protection of wealth amid speculation that the Fed will taper debt-buying that helped the metal cap a 12-year bull run last year. Fed Chairman Bernanke said this week that the central bank, which buys $85 billion a month of Treasury and mortgage debt, may begin reducing purchases this year and end the program in 2014, assuming that the US Economy will continue to improve. Sell stops in Gold got triggered when the market fell through the prior low of $1,320 area, then again below the sensitive $1,300 level & in Silver below the $21 mark, which added to heavy volumes. To add to the bloodbath, more raw commodity-market-bearish news came from China Thursday, as the HSBC flash PMI dropped to 48.3 in June from 49.2 in May. Any reading below 50.0 suggests contraction. Reports said the China manufacturing data Thursday was the weakest in months.

Precious Metals rise modestly on a rebound:

CME Group Inc. increased the margin requirements on gold trading, raising the minimum cash deposit for futures by 25% to $8,800 per 100-ounce contract at the close of trading today. Gold is still set for its worst week since September 2011 after the US Federal Reserve signaled it's getting closer to reducing monetary stimulus as the economy recovers. The 14-day RSI - relative strength index in Gold is at 29.4, below the level of 30 that indicates a rebound may be imminent. Cash Silver today gained 1% to $19.92 an ounce, after falling yesterday to $19.399, the cheapest since 2010 & falling 10% lower this week. Gold dropped to $1,269.5, the cheapest since Sept. 16, 2010, and is down 6.7% this week in the worst showing since Sept. 23, 2011. Comex Gold rose to $1301 while Comex Silver traded up at $19.92 today morning.MCX Gold hit a high of Rs. 26,957 whereas MCX Silver rose modestly to Rs. 41,415 before both again declined. Comex Gold remains weak till below the $1304.2 mark & Silver till below the $20.20 resistance levels. I expect to see a little more pressure on Precious Metals to the downside solely on technical basis. Comex Gold futures could decline further till the $1257.4 to $1228.6 range, whereas Comex Silver futures may get support around the $19.13 to $18.44 range. Gold holdings in the largest Gold ETF, SPDR Gold Shares, now sit snugly below 1,000 metric tons, the lowest since 2009. It was around 1,350 as 2012 wound down.

Physical demand for Precious Metals from India may remain subdued:

Precious Metals today rallied from their lowest levels since September 2010 on speculation the slump may spur purchases. A buying frenzy in Precious Metals from China to India, Australia and the U.S. followed the biggest price drop in 30 years in April, driving prices up more than $150 an ounce. It's too soon to predict if this will be repeated as the investors who were enthusiastic buyers in April have become more cautious. Buying of Precious Metals in India may remain restrained based on 2 major factors. The first being that the RBI (Reserve Bank of India) & the Govt. of India have imposed massive curbs & hiked Import duty, making Precious Metals costlier.

India Declares War on Gold - Chart of the Week - June 17

India Government Urges Banks To Stop Advising People to Buy Gold - June 12

Gold Investment in India May Not Be Lucrative Now - April 12

The Rupee has depreciated by over 10% in the past 40 days, which rakes up the landed cost of Precious Metals in India. Market reports say the Indian gold imports may decline by 30% due to recent Indian government taxing measures meant to reduce the country's current account deficit.

Also, buyers & investors in Precious Metals will now consider that bullion prices could go lower and are now waiting for prices to go up before they start buying physical gold or silver again. There will be a moderate pace in gold and silver coin sales but I don't think it will be anything like April. Will this (twice in 2 month's) slump enhance some physical buying in the precious metals, remains to be seen.

What makes me more Bullish on Silver than Gold?

Gold entered a bear market in April and has retreated more than 35% from its all-time high of $1,921.15 in September 2011 amid low inflation and a global equity rally. Silver has tumbled massively by over 60% from its all-time high of $50 in April 2011. One ounce of Gold yesterday bought as much as 65.4626 ounces of Silver, the most since August 2010 - High time for a Breakout!

The major point to be noticed in the physical markets is that more people have now been buying silver and also swapping their gold for silver, which has seen larger declines than its richer cousin. I think we will continue to see this kind of activity as the gold to silver ratio remains high. I expect, there could be a vicious short-covering rally in Silver as the June contract nears expiry next week.

Other downside Risks for Gold prices:

A downside point of risk for Gold is at these prices, the heavily bleeding; precious metals mining companies are under huge pressure. I think they have no choice but to start hedging again. Hedging was a practice that they previously gave up so their share prices would be fully exposed to the upside in gold prices over the last decade. Barrick Gold fell over 7.72%, joined by Goldcorp Inc. which fell by over 8.2% and Kinross Gold Corp (NYSE:KGC) which slipped by over 8.5% amid heavy sell off in the equities. Newmont Mining Corp (NYSE:NEM) lost over 5.5% on Thursday.

Further, equity-market weakness could mean pressure on gold for the near term at least, if investors have to liquidate positions in markets such as precious metals to raise cash for margin calls in stocks - where further downside risks are massive. The QE induced bubble in Equity & Bond Markets is close to a point of collapse.

Going further, the future economic data will be the key to the Precious Metals market movements, as always. - Keep a watch.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: "Silver"