GOLD & SILVER go HAYWIRE!

This week was completely haywire for precious metals.

Gold and silver went down and then bounced back on Wednesday. However, on Thursday gold and silver plunged down big time. On Thursday, the price of gold fell by 1.21% to $1,695.9; Silver price also plunged by 4.18% to $32.3. During the month, gold declined by 0.88%; silver, by 2.73%.

In the Indian markets, Gold fell Rs. 230 per 10 gram and silver fell by a whooping Rs.1700 per kg. It seems the recent FOMC decision didn’t help rally precious metals prices. On Wednesday, several U.S reports came out: retail sales rose by 0.3% during November; the PPI sharply fell by 0.8% last month; jobless claims declined again 29k to reach 343k. These reports suggest that the U.S economy is progressing and the inflation isn’t expanding.

The FOMC announced on Wednesday it will expand QE3 by start purchasing at the beginning of 2013 long term treasuries securities at a rate of $45 billion per month. This plan will substitute operation twist and will come in addition to the $40 billion mortgage backed securities purchase plan

However, the prices of gold and silver changed direction and plunged on Thursday despite the launch of the extended QE3. This drop in prices is an indication that many investors have cashed their investment in precious metals as these metals haven’t performed that well during the year 2012.Moreover, these investors might be waiting for the outcome of the budget talks in Congress and the consequences of the fiscal cliff.

Some bargain hunting had also occurred in gold after the metal fell below $1,700 an ounce overnight. The metal rose Wednesday on news of more Federal Reserve quantitative easing. But the inducement to lock in profits as we near year-end was strong, and therefore gold sold off. 

Meanwhile, markets were knocked back further on fading hopes that euro bloc leaders would reach broad agreement on Friday to tackle the region's debt crisis after Germany rejected draft proposals that would increase the euro zone's firepower in dealing with the credit crisis. Germany rejected some measures in draft conclusions from the summit, including giving the European Stability Mechanism (ESM) a banking license and issuing common euro-zone debt.

As far as currencies were concerned, The Euro/ USD remained unchanged on Thursday at 1.3077. During the month, the Euro/USD rose by 0.7%. Several currencies such as Aussie dollar depreciated yesterday against the USD by 0.26%. The correlations among gold, silver Euro and Aussie have weakened in recent days: during November/December, Thus, if the Euro and other risk currencies will decline against the USD, they are likely to pull down gold and silver.

Now, as we move towards the end of 2012, all eyes await the ‘fiscal cliff’ decision. We hope 2013 will have lots of positive sentiments in basket as far as precious metals are concerned.