When To Buy Gold And Silver: Are Prices Falling Only To Turn Back Up?

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Gold, silver and bronze

Gold and silver had a good start to the year. While many analysts were calling for higher prices this year, we questioned their ability to turn back up.  A weakening dollar and a correction in the stock market in February might help explain the advance these two precious metals made in the beginning of 2014.

Gold and Silver CME spot prices since 2013

Gold and Silver CME spot prices since 2013

Since their peak, silver has fallen 12 percent while gold has fallen 8 percent. Despite an upturn this year, both of them remain in a downtrend since 2011 and they are not far from recording a 4-year low. Silver, the weakest would fall into a new record low if it dropped 7 percent or more. Given their strong correlation that could drag gold to new lows as well.

US Dollar Index since 2011

US Dollar Index since 2011

The direction that the US dollar takes through the rest of the year might determine where these two precious metals head to in 2014. The dollar breaking down to lower levels will help gold and silver turn upward. However, we see the dollar more likely to go higher, having a depressing effect on gold and silver prices.

What This Means For Metal Buyers

Gold and silver prices seem to be having trouble turning upward. It might make sense to wait for real price strength before taking long-term positions. Future movements of the dollar will give us clues as to what these two precious metals will do through the rest of the year.

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