Precious Metals Continue to Lose Their Shine

Precious metals

One thing that distinguishes precious metals from others is their luster, their shine. This attribute is what has attracted human beings for thousands of years. This is what has made humans covet them and what has made them truly precious. Gold, silver, and platinum will always be precious metals and they will always have value. However, that preciousness is relative as it is a function of price. Gold is certainly more precious today than it was back in 2000 when it was trading below $300 per ounce.

However, it is less precious than it was in 2011 when it reached all-time highs of $1920.70. The same is true of silver and platinum. All three precious metals have moved lower over the past four years and it seems that each month they lose a little more value. This is because all metals have been making lower highs and lower lows over the past four years.

Precious Metals in 2015

In 2015, a wave of uncertainty swept across the world and markets, as the later is a reflection of global stability. An economic slowdown in China, economic lethargy in Europe and terrorist attacks in France and California are examples of issues the markets face. The U.S. dollar has strengthened dramatically from the levels seen in May 2014. Prospects of rising U.S. interest rates have become the reality. All this adds up to a decrease in the value of many raw materials and precious metals are no exception.

On December 3, 2015, gold traded to lows of $1045.40 on the active month February COMEX futures contract, the lowest level since February 2010.

On December 14, silver traded to lows of $13.62 per ounce, the lowest price since August 2009. On December 3, 2015, platinum moved to the lowest level since December 2008 when it made lows at $825 per ounce. In the past, precious metals have attracted buying during periods of uncertainty but in 2015, this has not happened.

When a market does not react positively to what has historically been bullish news it often uncovers true weakness. The infamous investor Warren Buffet once said, "Only when the tide goes out do you discover who's been swimming naked". In the world of precious metals, the tide of uncertainty in markets has told us that these commodities are inherently weak.​

2015 has marked the fourth straight year for lower precious metal prices. Gold lost 10.46% of its value, silver fell 11.51% and platinum shed 26.24% of its value. The prospects for 2016 do not look much brighter. When you consider that all three of the major precious metals remain above their 2008 lows, there is room on the downside for these commodities. At their lows, gold was at $681 in 2008, silver was at $8.40 and platinum at $761.80 in that year. These metals ended 2015 at $1060.20, $13.8030 and $891.70 per ounce respectively.

If we go back to the beginning of the new millennium, gold was at $283, silver was $5.355 and platinum was at $428 per ounce. Precious metal prices remain far above levels seen in 2000 and 2008 today. Despite the fact that the bear market that began in 2011 has trimmed prices, it is possible that they have more downside room from current prices.

Many devotees of precious metals became accustomed to higher prices during the great bull market between 2003 and 2011. Overall, these metals moved higher with very high levels of volatility over that period. The housing crisis in the U.S. and global financial meltdown in 2008 caused precious metal price of fall dramatically, only to recover and in the case of gold and silver to make new highs in 2011. The bull market in this commodity sector lasted eight years. The current bear market is entering its fifth year in 2016. Commodity prices are cyclical and at this point, we could still be in the middle of a bear cycle that will not be ready to bottom for a few more years.

Precious metals have been means of exchange for thousands of years. They will always have a place on the planet due to their rarity and acceptance as hard assets or real money.

However, the value of gold, silver, and platinum is a function of supply and demand and these days the fundamentals for these metals have tarnished their prices as they continue to make lower lows and lower highs in a bear market that has yet to find a bottom.