Darker clouds on the horizon for precious metals - 4th of October, 2011
With the under currents in the financial markets getting weaker yet again, the bullion markets are witnessing greater volatility. After what appeared to be a steadying phase for gold in the opening moves for the week, gold has once again slipped into the weak zone. Though the U.S. dollar has been artificially propped up, the Greek debt situation is getting worse by the day and this week can potentially witness more selling in the bullion markets. Buyers are more likely to play the wait and watch game until things come back, and potentially offer a lower entry level to take fresh positions.
We do know that the quick fix applied to the U.S. debt crisis lacks the strength to pave way for a long term solution. The U.S. economy is heavily dependent on consumption to keep afloat and move forward. With consumption dipping steadily, the cascading effect will soon hit the bottom and at this pace the nation will be moving into a recession towards the turn of the year.
To put it mildly, the Greek situation is moving from bad to worse. Consequently most of the major financial markets are in the red and some of them are on a tail spin. Even in markets like Mumbai, India where the festival season should have helped the bullion as well as the financial markets are witnessing severe downtrends with their indices heading towards a 2 or 3 year lows.
The coming weeks will most likely hold more liquidation in the bullion markets to raise cash and pay for losses incurred in the financial markets. While the bigger players will be fighting it hard to save their skin from the Greek crisis, the retail investors will stay on the side lines and wait for the more profitable opportunities coming their way.
At $1630, gold lost a little over $30 on October 4, and is headed south for most part of this week. It could be several weeks before gold takes a U turn and sets itself on a strong northerly course. Risk aversion is the key driver for the coming weeks and unless you are an extensively informed buyer with definite plans, it is safer to remain on the sidelines for some time now.