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Gold and Silver Recap: Precious Metals Prices Mixed

December 19, 2010 by Leave a Comment

Another Precious Week: Unsettled

Despite the general downward appearances, this was a very mixed week for precious metal prices.  Business Week, that fantastic contrarian indicator has announced that gold is in a  three month slump.  As Christmas is coming, there does not tend to be the large buying from India and (increasingly) China that there is over the autumn wedding season.  Unlike the three wise men, westerners don’t tend to give each other as much gold as the Indians do, although this may change if the expected retail gold breakthrough happens.  It has not happened (if it ever does) and so it’s still cheap Chinese electronics that are waiting for you under the tree, rather than discrete pieces of gold jewelery.  Sorry about that.

Precious Metals Prices
Fri PM Fix Weekly Change
Gold $1,368.50 -6.75 (-0.49%)
Silver $28.78 -0.01 (-0.03%)
Platinum $1,696.00 +23.00 (+1.37%)
Palladium $738.00 +1.00 (+0.14%)

Gold-Silver Ratio: 47.55 (was 47.77)

The Central Banks and investment funds also seem to be winding down for Christmas, and there is no discernible activity from these two sources. As they have been net buyers for the year, this is going to have a softening effect on prices.  The Central Banks of countries with sovereign wealth funds still think of themselves as being underweight in non-paper money, so they are likely to kick off buying in January, or if there is a dramatic dip.

On the currency side, it must be said that the fundamentals for precious metals are looking a lot more solid.  The European Central Bank is talking about printing a whole load of new Euros now that Spain looks very wobbly, and they realize that the stabilization cupboard is particularly bare.  The United States is also seriously unimpressive with benefits being extended for the poorest and tax cuts being extended for the richest.  This looks like a really nasty deficit in the making and so default by printing.

It must also be remembered that the Chinese are suffering some very real inflation, as even the People’s Daily has noticed. It is still a bit weird to realize that the Chinese press is quite free, by despotic communist standards, and that these pieces of news are getting reported.  There is also talk of the Chinese shifting some of their massive US government bond holdings into gold, which even at the margin will be massive.

If the big Asian buyers, particularly the private buyers, start to get as interested in silver, then 2012 could be a real bull market.

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Gold and Silver Recap: Silver Price to $50?

December 11, 2010 by 3 Comments

Another Precious Week

Usually we start this column with some guff about gold.  And then after talking mostly about gold we may hit the other metals.  Let’s face it, gold is usually the most exciting metal there is.  If the world collapses about us, we will be using gold as the currency that helps us rebuild civilization.  And after all, what could be more exciting than that.

But the real action has been in the silver market.  Not all up, it must be said as silver took a real pounding on some days, but there’s some real excitement that J.P. Morgan may be about to bite it on silver.

Precious Metals Prices
Fri PM Fix Weekly Change
Gold $1,375.25 -28.25 (-2.01%)
Silver $28.79 +0.05 (+0.17%)
Platinum $1,673.00 -45.00 (-2.62%)
Palladium $737.00 -21.00 (-2.77%)

Gold-Silver Ratio: 47.77 (was 48.83)

First let’s look at some history.  Bunker Hunt and a few friends tried to corner the silver market by buying silver and buying silver futures.  They drove the silver price skywards, to a level that’s not been reached since.  Then the authorities did some dirty tricks with the silver futures contracts, the price of silver fell, and everyone brushed themselves off and got on with life.

Now J.P. Morgan has been accused of doing the same thing, but in reverse.  Instead of buying silver they are selling it short, that is they are selling it now to buy in six months time.  They have, it has been alleged, sold far more silver than they can possibly have.  This has meant that the rise in the silver price is going to kill them if we all buy physical silver.  You see, someone may want to see all this silver they’ve been sold, and then J.P. Morgan will have to buy it and up shoots the price.

The core idea here is that the gold silver ratio is ridiculously high.  Historically (going back to Biblical times) it has been 16:1, now it is around 48:1, although this week it fell quite fast.  A return to historical norms would mean that silver would get to $87 per ounce.

So there’s some correction that’s due.  Now, this doesn’t necessarily mean that silver has to go up.  There could be a new paradigm, or if not, the correction could be postponed for a very long time. If the correction does happen, then it could be that gold would go down to around $500 – where it was only a few years ago.

Gold could keep going down, but there’s enough uncertainty and inflation to suggest that it won’t get all the way to $500 per ounce.  The correction could be delayed by decades or muted, but the collection will come.  You could still lose money betting on it.

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Another Precious Week: Back on Track – Record Breakers

December 4, 2010 by Leave a Comment

Gold, Silver, Platinum, and Palladium Weekly Recap

So the price of gold has broken the $1,400 mark, whatever.  The biggest news is that we shrug off records such as these being broken.

The pundits are saying that this is a “flight to safety”, to which we say that’s so last week.  Literally last week.  If you’re memory was at the top end of the gold fish scale (and we’re talking about market pundits here) you’d remember that the flight to safety was last week when all the other metals were going down but gold was up.

Now gold is up less than the other metals, and we know what that means.  Inflation, baby.  Sure enough, oil is up as well.  In fact gold really didn’t show much form until Friday, and that was only because of Chinese figures.

Precious Metals Prices
Fri PM Fix Weekly Change
Gold $1,403.50 +48.50 (+3.58%)
Silver $28.74 +2.12 (+7.96%)
Platinum $1,718.00 +79.00 (+4.82%)
Palladium $758.00 +88.00 (+13.13%)

This inflation hedging should be slightly puzzling, after all the Quantitative Easing announcements were a few weeks ago and the bank rescues in Europe may have been mildly inflationary, but they are also a reminder that the whole thing could go down in a deflationary spiral that will hit precious metals.

That’s because we’re looking at the west.  As we’ve been arguing for some time the consumer demand in the east is where the action is.  And the Chinese are very worried about inflation.  China has released figures that have shocked the markets showing that the demand for gold is five times what it was last year.  This is about a third of the total consumer gold demand. The Chinese are scared stiff of inflation, which is going out of control, particularly with a weak currency due to the dollar link.

Precious metals are the answer, and China has historically been particularly fond of silver rather than gold.

Governments are also actively buying, particularly Russia which has overtaken Japan to become the eighth biggest Central Bank holding gold.  And they got the World Cup soccer competition.  Lucky Russia.

In the silver market the talk is about market manipulation and short positions, with some people speculating that the traders who took out the massive short positions need to cover their positions and actually buy silver.  Well perhaps.

Palladium and platinum have also proved to be very tight markets, with palladium getting to its highest price since April 2001.  Palladium in particular has a very narrow supply base, with much of the mines being in Russia.

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Gold and Silver Recap: Prices Mixed, Eurozone Troubles

November 28, 2010 by Leave a Comment

Another Precious Week

The big news is once again that the Euro zone is in trouble.  Ireland has rather bizarrely decided to take a bail out loan that it claimed that it never wanted, but that’s not the really, really big news.

No the really, really big news is that the rest of the Euro zone is in trouble.  Both Portugal and Spain are denying that they need bail outs, which to the international markets seems to mean “are in an early rather than a later stage of negotiation”.  Even Belgium is looking vulnerable.  And outside the Eurozone the British, who seem to have been remarkably smug, are also in trouble due to their mainly nationalized banks being up to their neck in bad Irish debt.  So chaos.

And then there’s Korea, where we could have war.  And so more chaos.

But not inflationary chaos, yet.  This has meant that gold and silver swapped places this week.  Gold went up (reflecting a greater danger that the world was going to end soon) while silver went down showing that inflation was probably not likely when everyone’s trying to work out how to wind up a small but rather expansive economy.

Precious Metals Prices
Fri PM Fix Weekly Change
Gold $1,355.00 +12.50 (+0.93%)
Silver $26.62 -0.45 (-1.66%)
Platinum $1,639.00 -11.00 (-0.67%)
Palladium $670.00 -25.00 (-3.60%)

This has not just shown in silver, palladium and platinum prices – it’s also shown in the price for crude oil.  The dollar’s strengthened and everyone’s worried about money going out of the system rather than going in.  Whether this will last is another question, after all although the Euro is a mad concept with a single currency over separate fiscal policies it had a reasonably strong central bank.  Sooner or later someone’s going to start the printing press up as they’ve already done in Washington, Tokyo and London.  And gold rose 3.8% against the Euro.

When looking at the market there hasn’t really been much government action.  The action, as it has been for much of this half of the year, has been among consumers.  For example the GLD ETF, a way of investing in gold if you really trust brokers rather than gold coins in your hand, has been soaking up a lot of the customer interest in gold.  As these ETFs, or exchange traded funds, are adding to the liquidity they could be setting the stage for a sharp reverse.

There’s also some action in Asia as the Indian wedding season is adding yet more pressure as the wedding season starts and Vietnam allows more gold to be imported. One interesting fact is that Chinese consumers have doubled the amount of savings they devote to gold this year to 2%.  There’s plenty of room for growth.

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Societe Generale Favors Gold and Silver Against Farm Commodities

November 23, 2010 by Leave a Comment

At a recent media briefing, Societe Generale made their predictions for the next year’s commodities prices. Though gold has been in record territory and some are concerned that the price is peaking, they predict that it will continue to be a strong investment.

Fredric Lasserre, head of commodities research, commented “We might see some gold-price rally again because of the recent fears regarding sovereign debt, and also the impact it may have on the dollar-euro.” According to the bank’s predictions, gold could advance 11% in the next year. Palladium could advance 21% and silver could advance 19%.

Societe Generale contrasted these predictions with those of other commodities, particularly farm products. The bank cited supply shocks when it stated that most farm commodities don’t seem to have much upside potential at the moment. Their prices have recently rallied, but are not expected to do so again, unlike those of precious metals.

This year precious metals performance has been led by palladium, which has advanced 75%, followed by silver, up 64%, and gold, which has advanced 24%.

Soc Gen’s statements have been echoed by other banks who have also backing been gold and silver investment for the coming year. They recommend that consumers remain overweight in precious metals, stating that they are some of the safest long positions. This confidence appears to be supported by the recent behavior of the market.

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Gold and Silver Recap: Prices Mixed, $500 Silver Campaign

November 19, 2010 by Leave a Comment

The excitement seems to generally be wearing off.  It could be the end of the bull market in precious metals.  I don’t think so, but if I call it now and it does happen I will look like a prophet as every one else (including me) thinks that gold is going up.  Words are cheap.  Silver certainly isn’t.

In fact the market has been a bit up and down.  Down for two days on Tuesday and Wednesday, back up on Thursday and then gradually back on Friday.  In fact the gold price for once seems to have been helped by the world not going to pot, as the Euro zone seemed to be edging towards a deal to put Ireland into run off.

Precious Metals Prices
Fri PM Fix Weekly Change
Gold $1,342.50 -46.00 (-3.31%)
Silver $27.07 +0.28 (+1.05%)
Platinum $1,650.00 -62.00 (-3.62%)
Palladium $695.00 -8.00 (-1.14%)

It seems to have affected silver as well.  It only went up 1% this week.  On silver’s past form this is a fall.  So have they stopped competitive devaluation?  You bet they haven’t.  It’s just that fewer people are noticing it.

One stealth seller of gold from the official sector – which has been very quiet – has been the IMF.  While the World Bank goes around telling everyone that the gold standard is something worth considering, the IMF has been ever so quietly selling gold.  This has accelerated when the gold price has been relatively high as the IMF is not making an ideological statement in the same way that Gordon Brown did in the UK when he sold off a chunk of the gold reserves.  This has been counteracted by equally quiet gold buying from some Central Banks, particularly Russia.

Another source of demand is the Asian consumer, and that was quite evident on the week’s trading as much of the dip was attributed to the Chinese resolve in fighting inflation.  If China is successful against inflation then demand for gold will lessen.  One fact on the demand, China is now approaching India as the biggest gold consumer in the world, how long before the Chinese Central Bank shares its peoples growing love of gold?

Silver is still going up, even when all the other precious metals have a bad week.  There’s been relatively little action on the price fixing case, although there is now a rather bizarre campaign to bankrupt JP Morgan (one of the alleged fixers) by having everyone buying an ounce of silver which JP Morgan would have to sell back.  Their target?  Silver at $500 an ounce.  Currently it’s $27.

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Paper Money Collapses in Value as Gold and Silver Soar

November 16, 2010 by 2 Comments

Most people under the age of 50 have probably never seen government currency backed by a tangible asset such as silver.  The $1 dollar Silver Certificates, last produced in 1963, were backed by silver on deposit in the US Treasury and payable in silver to “the bearer on demand”.

The promise to redeem  Silver Certificate dollars for silver was withdrawn by the US Government and holders of such dollars had to be satisfied that the value of their dollar was now backed by the “full faith and credit” of the US Government.  Redemption of Silver Certificates for silver coin ended in 1964 and redemption of Silver Certificates for silver bullion was ended in 1968.

The era of currency backed by real money such as gold or silver ended and the dawn of a fiat currency system began.  The result for holders of currency backed by nothing more than promises has been disastrous as the value of paper dollars has seen its purchasing power virtually disappear.

Chart: dollardaze.org

As the quantity of dollars has grown exponentially, their value has correspondingly diminished, leading to a large increase in general price levels.

Chart pbs.org

Despite the obvious increase in prices and the collapse of the value of the dollar, the Federal Reserve tells us they now need to engage in money printing quantitative easing in order to create inflation to help the economy.  Fed Chairman Bernanke ensures us that the Fed is committed to keeping inflation low.

“Although asset purchases are relatively unfamiliar as a tool of monetary policy, some concerns about this approach are overstated. Critics have, for example, worried that it will lead to excessive increases in the money supply and ultimately to significant increases in inflation. Our earlier use of this policy approach had little effect on the amount of currency in circulation or on other broad measures of the money supply, such as bank deposits. Nor did it result in higher inflation. We have made all necessary preparations, and we are confident that we have the tools to unwind these policies at the appropriate time. The Fed is committed to both parts of its dual mandate and will take all measures necessary to keep inflation low and stable.”

The Fed has not succeeded at keeping inflation low in the past and now seems obsessed with inflating asset values to prop up a weak economy.  It’s all about trust with fiat money, and the Fed Chairman seems to be losing credibility.

The price movements in gold and silver are strong indicators that no one is being fooled by the Fed Chairman’s words.  Investors are watching “what they do – not what they say”.   Expect gold and silver prices to be dramatically higher over time, with an initial objective of $5,000/oz for gold.

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Gold and Silver Recap: G20 Aftermath and Silver Price

November 12, 2010 by Leave a Comment

Well it looks like the G20 worked.  Talk of ending competitive devaluation seems to have put a bit of zip into the dollar, and other currencies.  This has hurt gold, particularly towards the end of the week.

Oddly it didn’t touch silver, the purer inflation play.  So the view is that the end of the world is much less nigh than it was last week, but inflation is still on the way up.  Or perhaps the investors are confused as I am.  It’s usually the second answer when the market is spinning around in the short term.  In the long term the market may be the most rational engine for progress, but in the short term it is irrational and emotional.  Of course it is in the medium term that rational speculators make their money.

Precious Metals London Fix Prices
Gold $1,388.50 -7.00 (-0.50%)
Silver $26.79 +0.65 (+2.49%)
Platinum $1,712.00 -52.00 (-2.95%)
Palladium $703.00 +16.00 (+2.33%)

Talking about the long run, there’s even talk of gold being reintroduced to the international monetary system, from the President of the World Bank, Robert Zoellick.  “The [new monetary] system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”  Wow.  Sounds like the London Gold Pool of the 1950s and 1960s, although the United States tried throughout that time to stop private individuals buying gold.  He then says to the fiat money stalwarts “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”  Too true.  And silver.

But in the actual precious metals market the real movers were still private individuals rather than governments, with many metals traders warning that there is a big wall of consumer money coming in to the precious metals markets in the shape of planned commodity funds.  Could this be the start of the last leg when the main street investors buy into the death of fiat currency argument?

The silver market still went up, which on the face of it is a puzzle.  If the reason why gold went down was that the market believed that governments weren’t racing to finish off the purchasing power of their currencies, why is silver still going up?  Surely it should be going down.  More.

My theory is that this could be an unwind from the silver price fixing allegations as the action was at the start of the week.  There is also a potentially large overhang of short future positions, which essentially means that there are a lot of people who are selling silver without having bought it.  If they all have to close their positions at once, or buy the silver, then the price could shoot up.

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Gold and Silver Recap: The Fed Gives a Helping Hand

November 6, 2010 by 1 Comment

So the Fed decides that quantitative easing was going to boost the economy, as if the way to prove that you’re really clever is to do the thing that wasn’t working before, just all over again.  This is naturally going to give precious metals a boost as investors realize that whether or not QE2 works for the economy, it’s definitely going to work for inflation.

Silver has always been a purer inflation hedge than gold, apart from in the days of the bi-metallic agitation, but no one’s really sure what that was about.  Those were the days, when to be a money crank was the minimum standard of a self-educated mind.  Of course the biggest money cranks of all, the fiat currency crowd, won.

But while gold is an inflation hedge as well, it’s also an “OMG the whole world’s going to end and I’m going to be living my life in a bunker” hedge.

The smart money is starting to notice silver, which could make things interesting.  The argument for gold to go up is that not every one’s really bought it yet.  How much more true is that of silver?

Anyway the crucial thing here is the gold to silver ratio.  Currently 52 ounces of silver will buy one ounce of gold (or pounds if you want to think big).  Historically it has been around 30 ounces of silver for every ounce of gold.  But recently there’s been manipulation that’s kept the price down through deliberate manipulation of silver short positions.  Well that’s what some investors are claiming and have named HSBC and JP Morgan in a lawsuit.

Well silver’s been the tearaway kid this week but there’s still some action in gold.  Diwali is over and the Republicans have been elected, which means both Indian jewelery buying and US government spending are going to take a short breather.  Although the dollar went up against a basket of currencies it really looks like these events have suppressed demand for gold.

Central banks are starting to notice gold with countries as diverse as the Philippines and South Africa slowly increasing their reserves.  How long will it be before the foreign currency giants such as China, Japan, Taiwan and the oil states start looking at the only currencies that are still standing five thousand years later?

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Gold and Silver Recap: Making Up Lost Ground

October 30, 2010 by Leave a Comment

Another Precious Week in the Market

So the world’s returning to normal, and that’s a mild and slowly accelerating form of panic.  And all the precious metals are going up, at least against the dollar.

But there’s some bad news.  A load of tea partying gold bugs are heading to congress, and according to HSBC that’s bad for the price of gold.  Not really much evidence from their actual policies, but there’s a “loose correlation” between the gold price and democratic control of congress.

Precious Metals London Fix Prices
Gold $1,346.75 +24.25 (+1.83%)
Silver $23.96 +0.91 (+3.95%)
Platinum $1,700.00 +27.00 (+1.61%)
Palladium $640.00 +54.00 (+9.22%)

There’s also the Indian festival season which accounts for a stunning quarter of annual gold sales in India (a massive gold market).  This is good news, but Diwali is when it ends – and this year that’s Friday the 5th.  As the gold that is purchased is physical gold, then this is done for the year.  That’s a bit of a tighter correlation.

But there’s another piece of “news”, the London based Financial Times – a business paper that is essentially of the left (and the British left at that – so quite far left in American terms) has said that gold is a buy because the Chinese want it.  Well, actually when you look at it it’s an opinion piece written by David Hale of David Hale Global Economics, and although he sounds certain about the Chinese wish to project financial power and the Chinese consumer’s wish to protect him or herself from inflation, it’s based on conjecture.  They are useful signposts – and we should watch for them, but it’s not a sure fire prediction.

Palladium is the metal to watch at the moment (which probably will mean to watch … going down).  It was the only metal that held up last week, and it’s gone up considerably this week.  Palladium is driven by the demand for automobiles as well as having a Russian supply issue.  That is the Russians aren’t that keen on supplying it.

From undoubted manipulation, to probably imagined manipulation, the silver prices is not the star of the show this week.  There is some fevered speculation that there is another Bunker Hunt style cornering of the silver market.   Yes, it can happen, but look at what happened to those who tried it.

Platinum has been the most subdued of the precious metals this week, although there seems to be some radical restructuring of that particular industry with the world’s largest producer, South Africa’s Anglo Platinum going into “negotiations”, although it’s not clear what that is.  As they’ve recently been increasing output then it’s hardly likely to be closing the joint.

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