Gold Silver Report 26 July 2015

Gold prices tumbled to five year lows after mass selling across Asia and New York. Prices were further pressured by a strong U.S. dollar for most of the week, but saw some respite as the greenback and stocks dipped later in the week. Nonetheless gold ended the week on one of its biggest weekly decline for the year.

Price and Charts Snapshot:

On Monday gold prices plunged more than 4% after an unexpected burst of selling across Shanghai and New York markets during early Asian trading hours triggered a mini “flash crash”. A wave of sell orders within a one-minute period just after the Shanghai Gold Exchange opened sent the most-active U.S. gold futures contract down USD$48 to as low as USD$1,080 per ounce: its weakest since 2010. The selling follows China’s announcement last Friday that gold reserves increased much less than expected over the past six years. Meanwhile, the U.S. dollar also hit a three-month high against a basket of currencies, making dollar-priced gold more expensive for other currencies.^[1] Gold stabilised slightly on Tuesday, holding just above a five-year low,^[2] however fell again by more than 1% to hit a five-year low on Wednesday, as a bounce in the greenback pushed downside momentum.^[3] On Thursday gold managed to crawl back from the low as the U.S. dollar softened again, but gains were modest, remaining close to Gold’s weakest point since March 2010.^[4] On Friday gold continued a slide by more than 1%, but later bounced up as the dollar fell from its highs and U.S. stocks extended some losses, however the precious metal remained on track for its biggest weekly decline since March.^[5]

The exact cause of the early selling out of Asia was not immediately known, but traders and analysts attributed the massive move to high-frequency trading algorithms as well as stop-loss selling.^[6] Robin Bhar, an analyst from Societe Generale said “It was just a bit of a bear raid and there was nobody on the other side to mop up the selling”. Physical demand in Asia remained lackluster throughout the week.

The decline also added momentum on Wednesday after the U.S dollar picked up against a basket of currencies. Julius Baer analyst Carsten Menke said “We have a lot of pockets of weakness currently in the gold market, and that is what is feeding the bearish sentiment we see”.^[7]

The latest weaknesses are compounded by the looming increase in U.S. interest rates has been a key driver in gold’s descent and the bearish market sentiment.^[8] Capital Economics analyst Simona Gambarini said “It’s now likely that the Fed will hike rates this year, most likely in September … (and) investors are already showing that in their positioning. They’re becoming more bearish on gold.”^[9] The Fed will hold its next meeting July 28-29.

The slide has taken prices back to a key chart level threatening a break towards USD$1,000/ounce.