By: John Fisher
The freak factor fades! Last week’s flight crash in the Ukraine caused gold to race higher as the world digested the ramifications of a commercial airline being shot down by a rebel group or a sovereign nation. However, the premium the event afforded gold, along with the easing of tensions in the Middle East, has since subsided.
As is often the case with such “freak” events, even the passing of a short amount of time alleviates the initial fear and liquidation follows. Gold has now traded lower for three consecutive days. Near term support has so far been found ahead of the 200 day moving average of $1,286.25. Gold’s downward pressure has also spilled over to silver and it collapsed 3.50% yesterday. It is still trading higher than all of its major moving averages and will look to form a base above these levels.
In a sign of overall market weakness in terms of physical demand, gold borrowing costs have now reached a 13 month low. This is predominantly due to Asian demand slowing over the past year. Gold interest rates have been higher than current levels over the past few years because refineries have been borrowing metal from banks to create fabricated products to sell in Asia. With demand in Asia waning, refineries no longer need to borrow as much metal to make product which has caused the drop in gold interest rates.
First time jobless rates lowest since 2006 (accordingly to official numbers). New home sales have cooled. No significant increase in interest rates until mid to latter 2015.
All Things Considered – John’s Commentary
Even as the freak factor fades, no news will probably not be good news for the metals in the short term.
Gold under $1,300 is a buy. Silver needs to hold on to the $20 price handle to exhibit strength. If silver drops below $20, be prepared to buy another tranche, and/or swap some of your gold holdings for silver.
