Precious Metal Prices Stall on Market Uncertainty

The threat of a Greek default again weighed on stocks and commodities yesterday, with precious metals suffering owing to growing deflationary concerns. On Wall Street, the Dow lost 200 points – its worst day of trading since December – with Asian and European exchanges suffering further losses this morning. Crude oil prices have also slackened following news that western nations are preparing for another – perhaps final – round of negotiations with Iran over the latter’s nuclear programme, with hopes that this may reduce the odds of war.

The gold price remains well supported by strong physical demand below $1,700, though another settlement below $1,680 could mean more short-term difficulties for the bulls. $1,750 is the level that gold needs to best in order for traders to have any inklings of an upside breakout. The silver price is attracting bids at $33, though remains more vulnerable than gold at the moment, given the “risk off” sentiment that has prevailed in recent days. Likewise, platinum and palladium prices will struggle to gain traction as long as fear and liquidity concerns dominate.

As ZeroHedge comments, the paradox of these “risk off” moves, characterised by gains in the US dollar relative to other currencies, is that they all but guarantee more money printing by the US Federal Reserve. The Fed will not stand idly by as the euro continues to fall against the dollar, and will look to pump yet more new money into the banking system in order to halt the dollar’s appreciation. And, as the ZeroHedge article shows, given that the current ratio of Fed/ECB assets is well below the level seen in mid-2010 – just before the start of the Fed’s “QE2” programme – there is plenty of room for more easing from Bernanke and Co.

Still, if anyone has been scared by the recent volatility in gold and silver, Jeff Clark of Casey Research has a new article that puts this recent volatility in perspective. As his study of the period from 1976-1980 shows, the higher gold and silver prices go, the more frequent and violent intraday volatility becomes. The volatility seen last week is nothing in comparison with the 1970s, when intraday moves of 10%+ in silver were not uncommon. On September 18 1979, the silver price rose a whopping 36.5% in one day. As Jeff argues: “if history repeats, or even rhymes, our biggest days of volatility are ahead. And they will be normal.”