Investors still love gold and silver

Gold price The dollar's strength brought the precious metal's price down to a near two-month low. Strengthening of the dollar brought down the quotations of precious metal to a two-month low. According to a number of analysts, the technical picture in gold disposes to further reduction of the price. Other experts draw an analogy with the first half of March, when serious reduction of precious metal prices turned then to a powerful rally.

Is it worth to sell gold now on corrections or it is better to use the drawdown for purchases? Alexander Kuptsikevich, analyst at FxPro, answered the question of Fortrader magazine.

- In my opinion, after the drawdown in September, gold and silver are attractive for further purchases. Corrective drawdown left the metals within the upward momentum.

Gold and silver took off sharply and erratically in July, encountering a logical and massive profit taking above $2000 for gold. Silver, meanwhile, could not overcome its important round level of $30, falling under the hot hand of the correction following its big brother. But notably, the pullback was followed by a new sideways move.

The bears stayed away from both gold and silver for much of September, piling into them only early last week. But even here, it's important to note that these metals managed to stay within the Fibonacci retracement pattern. Gold was slightly below its retracement level of 38.2% from the rally of March-August. Silver fell below its respective line within a day, but time after time it was bought on the declines.

At the end of last week, the bearish pressure clearly wore off, and new buying appeared. Both metals are rising along with the positive dynamics of stock indices, which is easy to explain.

Demand for stocks and some other risky assets surged in anticipation of a new fiscal stimulus package in the U.S. It includes tax breaks for companies, $1200 checks for most of the population, and reinstatement of federal unemployment benefits. We saw earlier this year how all of these measures supported the demand for stocks and pulled gold and silver with them. We should expect the same now, as Americans are not immediately spending these stimulus measures, but are using them as a safety cushion by buying stocks and gold/silver.

Longer term, there are even more reasons to like gold and silver. After all, many governments are already starting to think about how to continue living with historically high debt burdens. Investors fear some form of "financial repression," where bonds will steadily produce negative real returns and currencies will be at risk of devaluation, forcing them to look for ways to preserve the value of capital in hard assets like raw materials and agricultural products.