Precious Metals prices continued moving lower this week. One of the main drivers in the market this week has come from the massive sell-off of Gold ETFs (Exchange Traded Funds). Analysts at Commerzbank AG reported that another six tons of electronically traded Gold holdings were off-loaded Tuesday, which brings the current tally to 412 tons since the beginning of 2013. Though the recent price drop has caused an onslaught of panic selling in electronic markets, physical demand for Gold coins and bars remains high as investors seek to take advantage of low prices.Another major driver this week was the Federal Reserve’s exit strategy for quantitative easing. Dan Greenhaus of BTIG LLC explained the stock market’s side of things Monday by saying, “In the short term, anything that discusses the Fed’s exit strategy has been associated with market weakness, and today is no exception.” This time of year, the Gold market normally gets support from the wedding season in India. However, this year it has not happened. After a surge of Gold and Silver imports into India in April, the country’s central bank has restricted imports of the metals into the country.  Because of the amount of imported Gold and Silver was so large, the county experienced a 72 percent jump in their trade deficit over the previous month.  “With India doing its best through taxation to limit Gold buying, the demand from there is not as big as it was the last time we were at these levels," Marex Spectron head of Precious Metals David Govett said. Friday, the  Gold price continues to trend downward  as the metal is poised for its longest consecutive session losing streak in four years. The central motivator influencing Gold’s decline is the continued speculation surrounding a potential reduction of quantitative easing (QE) and a rising dollar that has nearly reached a three-year high. Coupled with renewed investor optimism regarding the current bullish direction of U.S. stocks, Gold is experiencing a harsh short-term move.

PHYSICAL GOLD BUYERS DON’T TRUST THE NUMBERS

There is a major difference in opinions between physical and electronic Gold investors. While the Gold ETFs have been selling off at a record pace, the physical product has been doing the opposite. Standard Chartered analyst Dan Smith said, “At this point physical demand remains pretty strong, but it's not enough to offset that wider showing by investors.” Consumers of physical Gold usually perceive the market differently as described by Kelly Teoh, market strategist at trading firm IG Markets. “They don't have confidence in central banks, which are just pumping liquidity in the market [eroding the value of money]. There is no conviction in currencies. So it's a very different mindset,” Teoh said. While investors are concerned with the most recent drop in the cost of Gold, many remain positive as  several factors point to a bullish long-term outlook  for the yellow metal. The stock market rally that has seen the Dow Jones and S& P 500 reach record levels is thought to be overinflated by many analysts and is not supported by macroeconomic fundamentals. Fear of central bank sell-offs of Gold holdings have subsided since the initial panic triggered by rumors of Cyprus liquidating a portion of its reserves to fund a potential bailout. The future prospect of Gold demand in India and the current physical buying frenzy among retail investors worldwide indicate good news for long-term Precious Metals investors. 

At 4:45 pm (EDT), the APMEX precious metals spot prices were:

• Gold, $1361.20, Down $28.70.
• Silver, $22.29, Down $0.48.

The Gold price is continuing its steady march downward and is facing its seventh straight day of losses. The Gold price could post a weekly loss of nearly five percent.  Thursday’s data  put a damper on Precious Metal’s appeal as a larger-than-anticipated drop in consumer prices for April was reported, lessening Gold’s traditional safe-haven appeal. The U.S. dollar once again gained against the basket of six currencies it is measured against. The dollar index is near 10-month highs, pushed up on comments from San Francisco Federal Reserve President John Williams. Williams said that if the economy continues expanding in line with forecasts, the Fed could slow its bond-buying program as soon as this summer.

The World Gold Council reported recently that in the first quarter of this year, physical demand for  Gold bars and coins surged 10 percent from a year ago, and jewelry demand climbed 12 percent. Central banks around the world continued to add to their Gold holdings, putting more than 100 tons of the Precious Metal away in their vaults.

At 9:19 a.m. (EDT), the APMEX Precious Metals spot prices were:

• Gold, $1,379.10, Down $10.80.
• Silver, $22.69, Down $0.08.

The Gold price is falling for the sixth straight session and is reaching lows not seen since April. A strong U.S. dollar and weak investor sentiment for the Precious Metal are the likely reasons for the recent price drops. The continued stock rally has also led funds to liquidate their Gold positions.  Traders said that once Gold fell below the psychologically significant $1,400 level heavy selling was triggered.  Mitsubishi analyst Jonathan Butler said, “It is possible that we will see further selling. This fall is reminiscent of what we saw about a month ago during a sort of flash crash in Gold.”

It isn’t a secret that demand for physical Precious Metals has increased as the price has continued to stay low.  The World Gold Council reported Thursday  that investors didn’t buy enough physical Gold to offset outflows from Gold backed exchanged traded funds (ETF). Jason Toussaint, chief executive officer of World Gold Trust Services, the sponsor of the SPDR Gold Trust, said that the outflows from ETFs were due to speculative investors taking profits. As the Gold price fell, other metal prices followed suit the Silver price fell 2.5 percent in overnight trading.

At 9:16 a.m. (EDT), the APMEX Precious Metals spot prices were:

• Gold, $1,380.90, Down $18.30.
• Silver, $22.53, Down $0.24.

The Gold price fell to a three-week low in early morning trading, though it recovered some losses after a disappointing New York Manufacturing index report was released. U.S. stock futures slipped on the news, as the negative reading  indicates contraction in that segment of the economy. The producer price index, a key inflation gauge, showed slowing inflation as food and energy costs fell. This data could give the Federal Reserve more leeway to continue its quantitative easing plan instead of looking for a quick exit, as recently speculated.

Across the sea, eurozone gross domestic product numbers disappointed investors looking for an end to the recession that has stretched into its sixth straight quarter. The news, however, could turn positive, as Ishaq Siddiqi of ETX Capital explains. He said, “The outcome of eurozone GDP hasn’t triggered a reversal of the bullish tone, as many believe that  this will only push the ECB to consider options  to provide further stimulus measures.”

At 9 a.m. (EDT), the APMEX Precious Metals spot prices were:

• Gold, $1,413.70, Down $13.20.
• Silver, $23.00, Down $0.48.

Gold and Silver are trading lower this morning as a reaction to the U.S. dollar’s strength against the euro.  Referring to yesterday’s surprisingly strong retail sales data, Saxo Bank senior manager Ole Hansen said, “Any sign of strength in the U.S. data  is likely to create headwinds at the moment, that will be one of things to look out for as this is having an impact on the dollar as well.”

U.S. stock futures are flat in morning trading as Philadelphia Fed President Charles Plosser  shed light on the Federal Reserve’s exit strategy  from quantitative easing.  Plosser said, “A precursor to an exit must be to slow and then halt the continued expansion of the balance sheet. This would not necessarily indicate that increases in the policy rate were imminent. Rather, it would indicate that efforts to increase accommodation were coming to a close.”

At 9 a.m. (EDT), the APMEX Precious Metals spot prices were:

• Gold, $1,424.10, Down $12.70.
• Silver, $23.24, Down $0.55.