Gold & Silver Derivatives Rally Amid US Dollar Slow-Down - Fed Interest Rates

Gold prices rose on the back of a weak US dollar as fundamentals favored safety instruments, in the short-term the price of gold futures increased as the trading week came to an end on Friday, March, 20. The yellow metal listed on Comex settled at $1,184 an ounce thus showing a sharp rise of 2.8% during a busy week of trading which saw further uncertainty in the US economy as Fed Chairperson, Janet Yellen, extended the period of possible interest rate hikes.

Gold was joined by silver futures which also benefited from the news that the dollar could weaken on record low interest rates. The price of silver quoted on the Exchange rose 4.8% on the day closing at $16.883, thus signifying the highest increase since December 2013, weekly prices spiked 9%, the highest since August 2013. The latest shuffle brings commodity traders back in the equation as gold continues to play cat-and-mouse with the dollar.

Gold has been flirting around the $1,150 mark after stumbling below the key $1,210 psychological level. The precious metal has been playing either side of the spectrum post-2008, after hitting an all-time high of $1,920 it suffered severe declines with a record single day drop in April 2013 not seen in 30 years. Silver has also been on the radar for traders, the metals contract hitting an all-time high of $49.31 in 2011.

Both contracts have depreciated since the Fed tapering which saw a comeback of US financial instruments. The US benchmark index, the Dow 30 crossed the 18,000 mark for the first time last year after the US economy showed signs that it was paving its way out of recession and reported strong GDP figures. GDP growth was 2.8% in 2012 and 1.9% in 2013.

Gold prices are highly correlated with the performance of the US economy and tend to move in the opposite direction of the greenback. This is because gold is priced in US dollars which can become costly for international investors if the dollar strengthens.

Gold Goes Electronic

In other news related to the precious metal, the century-old gold fixing has finally embraced electronic markets. From the 20th of March, the newly appointed LBMA Gold Administration will determine the daily benchmark, a manual practice previously carried out by banks. The move come after several key figures such as Libor, FX and Gold Fix were under investigation as traders who had allegedly manipulated the markets. Investigations have uncovered several banks and traders to face penalties for their role in the debacle.

The precious metals spot contract is readily available on major retail and institutional platforms and volumes have grown sporadically across the globe as traders appreciate Volatility in the contract.

On the other hand, the gold futures metals contract listed in Hong Kong has been withdrawn after the Hong Kong Exchange decided to cease its offering last month.

Gold is expected to continue to weaken as the overall outlook for global markets is optimistic, on growth. Credit Suisse analysts have been quoted as saying that the yellow metal could fall below the key $1,000 mark.

Amanpreet Kaur, a commodity trader commented: “The commodity bubble is bursting as we speak, there's no need for investors to explore the likes of gold and oil as prices will continue to trickle down to all-time lows.”

The latest fiasco to hit the energy markets has been Gartman's analysts predicting a price as low as $15 for oil.