Gold And Silver Price Crash Of 2014 Coming?

Both gold and silver went sharply lower this week, especially yesterday and today. Gold in U. S. Dollars closed the trading session and trading week at 1,172.49, a decline of 2.14% on the day. Silver closed at 16.14 U. S. Dollar, which is 1.53% lower on the day, albeit a spike lower during the trading session to $15.65 for only some minutes.
What is happening with the metals? Are the price of gold and silver about to crash to a low of 2014 or has the worst passed?
Before trying to answer those questions, it is important to look at the developing activity across markets. The key point is that the drivers for the gold and silver price are mainly two other key assets: the U. S. Dollar and equities.
Central banks are driving the financial world Today, the Japanese central bank (Bank Of Japan, also BOJ) decided to launch a mega-money-printing program. The BoJ aims to increase its monetary base by 80 trillion yen annually, from 60-70 trillion yen previously, and boost the average maturity of JGB purchases 7-10 years. When BoJ Governor Kuroda began his current QQE program, he said Japan would reach 2% inflation in two years. The two-year deadline ends in around five months and inflation is still only halfway to the BoJ’s target. There is essentially no chance that the bank will meet this target, even with this new stimulus.
Matthew Weller from Forex.com points out that the BOJ stimulus, combined with Wednesday’s less-dovish-than-expected statement from the Federal Reserve, today’s news creates crystal clear policy divergence between the Fed and the BOJ. ‘In the US, the Fed ended its third round of quantitative easing by tapering asset purchases by their final $15bn and released a somewhat more hawkish statement than the market was expecting. The bank noted that labor market conditions have improved somewhat, with solid job gains and a lower unemployment rate. The underutilization of labor resources is also gradually diminishing according to the Fed.’
As a result, the US dollar was bid on the back of the Fed’s statement as US Treasury Bond yields rose and stocks fell. Since then the US dollar has gained even more ground against the struggling euro and yen, while the kiwi and aussie have been able to hold their ground on the back of robust investor sentiment and a slightly risk-on tone in the market.
U. S. Dollar strength According to Matthew Weller, the reaction to the Fed’s statement is somewhat more severe than one might expect, given that the actual course of monetary policy in the US remains very data dependent. While the Fed noted that the likelihood of inflation running persistently below 2% has diminished somewhat, we are still yet to see a meaningful pickup in consumer price growth. Some of this can be attributed to lower energy prices, but even once food and energy prices are taken out, inflation remains stagnant around 1.7% y/y.

This post was published at GoldSilverWorlds on October 31, 2014.