What in the World Happened to Gold and Silver Prices Last Week?By Clint Siegner The first is the strength in the U.S. dollar. The DXY index, which measures the dollar against other major world currencies, hit its highest levels since July. This surge, however, is not driven by safe-haven buying as it was immediately following Brexit. That sort of fear-driven buying would almost certainly be boosting precious metals as well. Rather, investors are looking forward to the Federal Reserve tightening monetary policy, which helps the dollar but hamstrings precious metals. The gold bugs old nemesis the Fed just keeps coming back. It seems nothing can kill the markets expectations of higher interest rates. Despite years of meaningless threats to hike, slowing GDP growth, and other weak economic data, the consensus for a rate hike by years end is growing once again. The second factor is related to the first. Longer-term interest rates are rising. The yield on 10-year Treasury bonds recently hit the highest levels since June. The bond markets largely ignored Fed jawboning in regards to higher rates during the late spring and summer, but now they are behaving as if a rate hike is a certainty. Rising real interest rates create headwinds for gold, which does not offer a yield. The last factor is (or was) the extraordinarily high speculative interest in metals. Open interest in both gold and silver futures soared as metals ran higher and then peaked following Brexit. That speculative interest fell slightly as prices stalled during the summer, but less than expected. The markets entered October with lots of traders still willing to hold out for higher prices as long as prices werent breaking down. Across the table from them sat the bullion banks, heavily short and pushing for prices to fall. The impasse broke when the stronger dollar and higher rates pushed metals below technical support. Weak-handed speculators ran for the exits. The good news, if any, is that flushing weak hands and reducing open interest will put markets in a better position to bottom and start a new leg higher. Of course, much will depend on what happens in the dollar and in interest rates. Our view remains unchanged. The Fed is going to find it difficult to normalize interest rates and eventually markets will figure that out. Stimulus addicted stock and real estate markets achieved their current highs based on the flood of cheap money. And the federal debt would take roughly a trillion dollars a year to service if the cost of funds heads north to 5%, which is closer to normal. That would mean debt service consumes more than 25% of the entire federal budget. Given the projections for rising deficits in the years ahead, it is safe to say normal rates cannot be tolerated and therefore the Fed will not allow them to occur. The biggest question is whether officials will be able to make even one or two token hikes before having to reverse course and re-open the stimulus floodgates. The last rate hike, a measly quarter percent in December of 2015, cratered the stock markets and immediately had officials back pedaling. Gold and silver prices soared. Investors should expect history to repeat this next time around. Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 Dealer of the Year in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs. The author seems to forget gold and silver prices are not based on supply and demand of the physical commodities. The prices are determined in the electronic futures markets, where the volume of paper metal far exceeds the amount of physical metal. In this market, 90% don not fare very well and 10% rake in the action. Ask these 10% why the prices dropped. Dont forget the London Fix 