HardAssetsInvestor

Written by Sumit Roy  |

October 16, 2012

Gold & Silver Correct Amid Lack Of Bullish Catalysts, But Major US Dollar Breakdown Could Spur Rally

Details

We offer our latest analysis on the precious metals market.

Gold and silver prices fell to one-month lows on Monday, as technical traders sold following recent unsuccessful attempts to break the $1800 and $35.50 resistance levels, respectively.

The monetary duo’s current predicament is a lack of bullish catalysts. Eurozone sovereign debt concerns seem to be in retreat, and while the Fed’s latest quantitative easing program will continue indefinitely, it’s largely been priced into the market.

GOLD

SILVER

PLATINUM

PALLADIUM

What gold and silver need is fresh catalysts to spur prices higher. That catalyst could come in the form of a decline in the U.S. dollar. After plunging in August and September, the greenback has largely been range-bound over the past month.

That’s essentially the inverse of what’s happened to gold and silver. Prices for the duo surged over August and September, and then flattened over the past month.

U.S. DOLLAR INDEX

Lingering concerns about the eurozone have kept pressure on the euro currency, and thus provided some support for the U.S. dollar. But in our view, the dollar may be ready to make a significant push lower as market sentiment improves and risk appetite increases.

Ironically, the recent improvement in the U.S. economic data is bearish for the U.S. dollar, for the currency tends to depreciate during periods of economic optimism, as investors shift their assets from the safe haven of the dollar toward riskier currencies.

Bottom Line: Gold and silver are in a shallow correction due to a lack of bullish catalysts, but a potential move below the 78.5 level on the Dollar Index would mark a major breakdown for the U.S. currency, and would be extremely bullish for gold and silver.