The first two weeks of March have not been kind to gold and silver
Gold closed March 13 at $1,202.20 per ounce, down 4.3 percent from
the $1,255.60 price where it closed Feb. 28. It had closed at a 2017
high of $1,257.20 on Feb. 27.
Meanwhile, silver has experienced a similar drop so far in March.
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One ounce of silver closed at $18.28 on Feb. 28. It closed up on
March 2 at $18.33 before falling 7.1 percent, to $17.02 on March 13.
And gold and silver had been doing so well
The March drop comes after gold and silver were both on a tear during the first two months of 2017.
The silver spot price had risen to its 2017 high of $18.33 on March
2, from $15.74 on Dec. 23. That $2.59-per-ounce rise translates to a
16.5 percent increase.
Gold rose to its $1,257.20 high on Feb. 27 from around $1,131 on
Dec. 22. That’s an approximately 11 percent rise.
So what is causing the sudden March drop?
A major announcement from Federal Reserve Chairman Janet Yellen
might have something to do with it.
Federal Reserve expected to raise rates on March 15
Yellen is expected to announce on March 15 a 25-basis-point increase
in the federal funds rate, which is the rate one bank can charge
another bank for the short-term loans a bank might need to end the day
with enough capital to cover all their lending to customers.
It would be the first of three federal funds rate hikes expected in
2017, according to The New York Times.
Changes to the federal funds rate often gets passed along by banks
to customers, in the form of fee rate hikes for customers borrowing
from banks for car loans, credit cards, mortgages and the like.
So the Federal Reserve typically implements increases to the federal
funds rate only when confident that the wider economy can handle the
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A raise to the federal funds rate also typically strengthens the
dollar, according to Reuters, and since precious metals
investments are often made as hedges against potential weakening of
the dollar and the U.S. economy, it could very well be that gold and
silver spot prices are being directly affected in March by the lead-up
to the anticipated federal funds rate hike.
So will the precious metals price falls continue?
Of course, no one can say with certainty if and how quickly gold and
silver prices will stabilize or begin rising again. However, several
current events, mostly in Europe, are likely to continue pushing
investors toward the safe-haven investments.
In addition to continued uncertainty in the United States about how
President Donald Trump’s policies will affect the U.S. economy in the
long term, Reuters reports the divisive elections in the Netherlands
and France, where far-right candidates are polling strong, a potential
second Scottish independence referendum, and the upcoming start of the
official Brexit negotiations, are all potentail gold and silver boosters.
Even the Federal Reserve rate hike may not keep the prices down long.
“Typically, once we get the reality of the rise, the dollar starts
to ease off a little and gold tends to recover, and that’s exactly
what we’re expecting this time,” George Milling-Stanley, head of Gold
Strategy at State Street Global Advisors, was quoted by Reuters as saying.
Why people invest in gold and silver
Investing in gold and silver has historically been viewed as a hedge
against the unpredictability of the overall economy, and in turn, a
safe haven when other markets experience a downturn.
Gold is valuable. That is based on the fact that we know there’s not
a lot of it, and we know it is appealing to people. So while the
health of someone’s investments in the stock market is subject to the
performance of the companies invested in, gold is a known commodity
with a value that, while it does fluctuate over time, generally does
not fluctuate with the suddenness that a company’s stock can.
While still a hard asset that can serve as a hedge, silver is much
less valuable than gold and its price is more prone to relatively
large swings in the percentage of its value, up and down.