HardAssetsInvestor

Written by Sumit Roy  |

October 23, 2012

Begin New Gold & Silver Positions As Correction Reaches Nearly $100, US Election Looms

Details

We offer our latest analysis on the precious metals market.

Gold prices continued to correct over the past week, as short-term traders liquidated their positions following the technical failure at the $1800 level earlier in the month. A pullback in stock markets further unnerved fickle traders, while dampening overall investor appetite for risk.

The yellow metal currently finds itself just above $1700, thus, prices have fallen almost $100 in only a few weeks. Meanwhile, silver has fallen from close to $35.50 to below $32 in the same time frame.

GOLD

SILVER

Whether gold declines further from here or rebounds is dependent on the fate of the broader financial markets. The correlation between the yellow metal and stocks is growing stronger. Some of this has to do with the fact that as stocks decline, the U.S. dollar tends to rise, which is a bearish factor for gold.

Additionally, investors become more wary of deploying capital into risk assets in general—gold included—during broad market corrections.

Thus, gold’s performance in the coming weeks and months will be closely tied to that of other risk assets such as stocks. Wednesday’s Federal Open Market Committee’s policy decision is not expected to be a market mover. The central bank played its cards at the last meeting when it initiated QE3.

That said, expectations are that the Fed could increase the size of its quantitative easing program at its December meeting ahead of the expiration of Operation Twist.