Precious commodities like gold and silver are back in the spotlight since their sharp declines about a mid-April. Both metals are sending some important signals as to the state of play in the markets at the moment.
Since a month ago silver has broken its April low and the weakness has accelerated since the break of this support today, falling to the lowest since September 2010.
While gold is still above its April low, there were spikes than the lowest closing in April. Gold touched below $1,350 today in early Monday trading.
After making corrections since mid-April, both metals are back on the downside since markets expects further dollar strength and supports the US Federal Reserve’s view that inflation is not a danger. So gold and silver are no longer that appealing and dollar is king again.
If the Fed does indeed begin to taper off quantitative easing, then the dollar will get stronger since the end of bond purchases that have been weakening the dollar will help increase demand for it again.
A stronger dollar leads to weaker commodity prices. Gold and USD tend to have an inverse price relationship.