Precious metals slump to continue, ETF specialist says

A stronger US economy is seeing interest rates increase and bullion demand plummet, an ETF analyst has said.

“Higher interest rates will rise in North America, which means it is likely that precious metals – gold and silver especially – will lose favour among investors,” said Christopher Vecchio, currency analyst for

Overextended monetary policies in North America will be wound down as a result of economic growth and unemployment rates dipping in the US, he added, which will cause interest rates to rise and the demand for gold as a safe haven to decline.

“Reduced sovereign credit risk for the US, alongside higher rates behind flat currencies, will dampen demand for alternative assets,” Mr Vecchio said.

Despite advocates of precious metals pointing to the continued printing of money as a potential turning point for gold, the recovery of the US economy is now causing analysts to question the short-term potential of a precious metal resurgence.

A spokesperson for Société Générale has also downplayed the notion that gold will return to its record high trading prices of 2011, believing that improving economic fortunes in developed nations is reducing the importance of bullion investments.

“The more benign environment has distracted investors from gold,” said Société Générale. “Returning risk appetite has favoured higher yielding assets and in turn has strengthened the US dollar, a negative for gold.”

However, the current economic situation in the eurozone points to a different scenario and could help compensate for waning interest in gold from US investors.

“With the eurozone still in economic meltdown mode – and flirting with crisis thanks to Cyprus’s botched bailout – Italy’s dysfunctional political climate and Spain’s housing bubble, it is likely that precious metals will remain elevated at least in euro-terms,” said Mr Vecchio.