Gold and Silver Plummet on Dollar Strength

On Wednesday, gold (NYSEARCA:GLD) futures for December delivery fell $75.60 to settle at $1,584.30 per ounce, while silver (NYSEARCA:SLV) futures dropped $2.31 to settle at $28.88.

The euro approached a record low for the year on Wednesday as Italian borrowing costs shot up at a bond auction and an economic report pointed to evidence that a recession is looming for Europe.  Last Friday, European leaders announced measures to shore up market confidence in the euro, rolling out more money for a bailout fund and stricter rules governing public finances.  But confusion over how and when the measures will be implemented, together with the European Central Bank’s refusal to increase its bond purchases, left sentiment close to where it was before a summit in Brussels last week offered a brief burst of hope.

Investor Insights: Is Gold’s Bull Market Over?

In the foreign exchange market, the U.S. dollar (NYSE:UUP) has been the main beneficiary of Europe’s debt crisis, gaining almost 5 percent against the basket of currencies used by the Intercontinental Exchange to compile its dollar index.

As a result of the dollar strength amid a liquidity crunch, precious metals (NYSEARCA:DBP) were whacked today.  In afternoon trading, the SPDR Gold Trust (NYSEARCA:GLD) fell almost 4%, while the iShares Silver Trust (NYSEARCA:SLV) decreased 6%.  Gold miners (NYSEARCA:GDX) such as Yamana Gold (NYSE:AUY) and Barrick Gold (NYSE:ABX) declined 6.25% and 5%, respectively.  Silver miners (NYSEARCA:SIL) were also hit hard Wednesday.  Hecla Mining (NYSE:HL) and Endeavour Silver (NYSE:EXK) both fell 7%, while First Majestic (NYSE:AG) declined 6.15%.

The technical picture is also giving some precious metal investors reason to worry.  On Wednesday, gold fell below its 200-day moving average for the first time since January 2009.  Gold is on pace to end its longest streak of consecutive closes above its 200-day moving average since at least 1975.  However, the trading channel in gold since 2008 suggests that gold prices can decline to $1,500 and still remain in its historic upward trend.  Meanwhile, silver can decline to $25 and still maintain its upward trend.

If you would like to receive more professional analysis on equity miners and other precious metal investments, we invite you to try our premium service free for 14 days.