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Silver ETF Holdings Soar as Gold ETF Holdings Decline

February 24, 2011 by Leave a Comment

The SPDR Gold Shares Trust (GLD) holdings declined slightly on the week, while the iShares Silver Trust (SLV) increased its holdings by a substantial 164 metric tonnes

Holdings in the GLD declined by 5.77 tonnes compared to a decline of 2.43 tonnes in the previous week.  Total holdings have declined by 4.9% or 62.48 tonnes since the start of the year.  The GLD currently holds 1,218.24 tonnes or 39.17 million ounces of gold valued at $55.2 billion.

The price of the GLD has traded between $128 and $139 since last October after running up from approximately $110 from the start of 2010.   The GLD was originally launched in November 2004 when the price of gold was trading at $445 per ounce.

GLD - COURTESY STOCKCHARTS.COM

GLD and SLV Holdings (metric tonnes)

23-Feb-11 Weekly Change YTD Change
GLD 1,218.24 -5.77 -62.48
SLV 10,575.23 +164.00 -346.34

Silver holdings in the iShares Silver Trust (SLV) increased by 164 tonnes over the past week compared to an increase in the previous week of 41.01 tonnes.  The year to date decline of 346.34 tonnes represents a 3.2% drop in silver holdings since the beginning of the year.

The Trust is structured so that the value of the iShares will reflect the price of silver owned by the trust.  The price of an iShare should closely track the price of one ounce of silver, less the Trust’s expenses.  However, the price of the SLV will fluctuate during the day as traders buy and sell shares.  If there are many buyers purchasing SLV, the price can rise to a premium over the underlying value of silver as seen in the chart below comparing silver to the SLV.

The amount of silver held by the SLV will vary due to the mechanism by which shares are created or redeemed by the Trust via Authorized Participants.   Authorized Participants are typically large Wall Street Investment firms that will either deliver or take silver from the SLV as they arbitrage to take advantage of premiums or discounts of physical silver to the value of the SLV.  The GLD operates similarly to the SLV which is why an increase in the price of gold and the price of the GLD may not necessarily result in greater gold holdings by the GLD.

SILVER/SLV - COURTESY STOCKCHARTS.COM

The SLV’s closing price of $32.71 on February 23th is 9.2% above last weeks closing price on February 16th and reflects silvers large price increase over the past week as prices broke out to new highs.  Since 2010, the price of silver has more than doubled from the $16 range to the current price of $33.70.

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Gold Demand Soars as Supplies Increase Marginally

February 21, 2011 by Leave a Comment

Gold demand increased strongly across all sectors during 2010, as the supply of gold barely increased.

According to the World Gold Council, global demand for gold hit a 10 year high of 3,812.2 tonnes worth $150 billion.  The demand for gold hit an all time high in value as gold prices hit a record high of $1,421 per ounce on the London PM fix.  Typically, as the price of an item increases demand will decrease, but in the case of gold, it seems that  higher gold prices are creating more demand.  The risk of sovereign defaults, inflation, economic concerns and weak currencies have convinced many investors that gold is  integral to the preservation of wealth.

The demand for gold in 2010 was nothing less than extraordinary considering the 25% increase in gold prices.  The London PM Fix price of $1,121.50 at the beginning of 2010 increased steadily throughout the year and closed on December 30, 2010 at $1,405.50.

The World Gold Council noted that key factors affecting the price of gold during 2010 included the following:

  • Jewelry demand increased by 17% over 2009, with demand particularly high in both India and China.  Asia accounted for 51% of total investment and jewelry demand during 2010.
  • For the first time in 21 years, central banks became net purchasers of gold.
  • Investment demand for gold during 2010 was actually down by 2% in 2010 to 1,333 tonnes, but was the second highest demand year on record.

Gold Demand - World Gold Council

The value of gold demand skyrocketed by 38% in 2010 to $150 billion, despite the 40% increase in gold’s value since 2008.  The statistics for specific demand categories, according to the World Gold Council were as follows:

  • Total gold jewelry demand increased by 17% to 2059.6 tonnes despite increased gold prices.  The value of jewelry demand was $81 billion.
  • Investment demand for bar and coin and ETFs remained stable in 2010, down only 2% from the previous year.  In value terms, demand strongly increased by 23% to $52 billion.  Demand for physical bars increased by 56% to 713.2 tonnes.
  • ETFs accounted for 9% or 338.0 tonnes of gold during 2010 which was down by 45% from the peak of 617.1 tonnes in 2009.  At year end 2010 gold holdings by ETFs amounted to 2,175 tonnes worth $96 billion.
  • Gold demand by the technology and electronics industry rose 12.4% to 419.6 tonnes.
  • The market with the strongest growth in gold demand was India.  Gold demand by Indian consumers increased by 66% to 963.1 tonnes worth $38 billion.
  • The market with the strongest investment demand was China which saw a 70% increase in demand for coins and small bars to 179.9 tonnes worth $7 billion.

Total gold supply increased by only 2% as mines struggled to find new deposits and increase production from existing mines.  Out of total yearly gold supply, 40% comes from recycled gold.

Filed Under: Gold Tagged With: , , , , , ,

Silver Breaks Out of Triple Top for New Bull Move – Is Gold Next?

February 21, 2011 by Leave a Comment

Triple tops are a well known chart formation that signal the potential for a price trend reversal.  A classic triple top occurs over a period of three to six months during which prices decline after hitting a series of multiple equal highs.  For the reversal pattern to register a definitive sell signal, the price must break below support levels.

A triple top has certain characteristics, each of which must be analyzed.

  • The three highs must be within reasonable price points of each other and spaced over equal time periods.
  • A previous long term uptrend must have occurred which established a definitive uptrend.
  • Volume levels tend to decrease during the formation of a triple top.  If volume increases on a pullback from the third top, more significance must be given to the potential for a significant trend reversal.
  • A triple top is not completed unless the price level breaks a key support level which would be the lowest price point on previous pullbacks from the intermittent tops.
  • A triple top chart pattern is not considered bearish unless support levels are decisively broken

Examining the chart for silver before the recent move up, we could see a pattern developing with characteristics of a triple top.  The critical support level for silver was at  the $27  level.  Silver’s inability to break resistance at the $30 level would have been at best a neutral signal and a break below $27 would have forecast further price declines.   The strong upward price movement in silver last week as it soared past the $30 area is extremely bullish and tells us that the bull market in silver is intact.

Silver - courtesy stockcharts.com

TRIPLE TOP BREAKOUT - COURTESY STOCKCHARTS.COM

Viewing the chart of gold, we can see that the same potential for a triple top exists.

Gold - courtesy stockcharts.com

Gold has been turned back three times at the $1425 level, the tops are equally spaced over a period of almost 4 months and gold has been in an established uptrend for an extended period of time.  In the case of gold, a drop below support at $1320 would be a bearish signal and reason to take a defensive posture.

Considering the strong fundamentals supporting gold, we may soon see a breakout in the price of gold similar to what we have just witnessed with silver.

Filed Under: Featured, Gold, Silver Tagged With: , , , ,

Silver Soars to 30 Year High as Precious Metals Resume Upwards Trends

February 18, 2011 by 1 Comment

After a brief consolidation below the 50 day moving average in late January, silver resumed its uptrend with a vengeance.  The London PM fix price for silver closed at $31.94 up from $30.00 the previous week.  Since late January, silver has rocketed $5.50  for over a 20% gain.

Silver - courtesy stockcharts.com

The fruitless budget reduction talks in Washington, a slide in the US Dollar Index and a new high on silver are certain to ignite the precious metal markets into another major move upwards.  Most investors under the age of 50 probably don’t remember the last time silver prices have soared past $30 in the early 1980’s.

Technically and fundamentally, silver is poised to make a major move.  Price movements coming out of long bases usually have a long duration.   Silver has broken out from an ultra long base of over 25 years.  The initial move from the $5 area to $30 is simply the first phase of what should turn out to be a major upward move.

Long term silver

Silver hit an all time high of $48.70 in January 1980.  The inflation adjusted historical high for silver is $130 per ounce.  Considering the horrendous manner in which sovereign states are conducting their financial affairs and the potential for another financial crisis, the inflation adjusted high of $130 will look like a bargain price at some future date.

The closing London Fix Prices showed gains across the board from the previous week.  Silver was the standout performer with a gain of 6.5%.

Precious Metals Prices
Fri PM Fix Since Last Recap
Gold $1,383.50 +19.50 (+1.43%)
Silver $31.94 +1.94 (+6.46%)
Platinum $1,836.00 +7.00 (+0.38%)
Palladium $847.00 +25.00 (+3.04%
Filed Under: Featured, Weekly Recap Tagged With: , , , ,

Gold Featured on Magazine Cover- Should We Be Worried?

February 16, 2011 by 1 Comment

There is a body of empirical evidence suggesting that once a particular investment category is featured on the cover of a popular magazine, a major trend change is imminent.

This theory, know as the “Magazine Cover Indicator” was first documented by Paul McRae Montgomery, a strategist at Legg Mason.  According to Mr. Montgomery, “The great value of popular magazine covers is they indicate the extent to which awareness of fundamental factors is widely shared, and therefore are unable to move prices significantly further”.

The Magazine Cover Indicator has been dismissed for being overly simplistic.  Nonetheless, Mr. Montgomery’s research shows that after a financial trend is featured on the cover of a widely distributed magazine, there is a high likelihood of a major trend reversal.  The focus of Mr. Montgomery’s research was Time Magazine cover stories going back to 1914.  When  a specific financial investment was the cover feature, within a year and up to 80% of the time, the trend featured on Time’s cover had reversed and sometimes in a dramatic fashion.

One of the all time great clarion calls for investors was the now infamous BusinessWeek cover story headlined “The Death of Equities” in August, 1979, just prior to the greatest bull market for stocks in history.  According to Montgomery, the indicator has resulted in profits for him and his clients, stating that “It has worked surprisingly well, but people don’t take it seriously.  I actually move money based on it, but I don’t think many other people do”.

Given the research cited above, should we be worried about this week’s magazine cover story by SmartMoney entitled “The Power of Gold”?

Despite the apparently bullish title, after reading “The Power of Gold”, one gets the distinct impression that the article is bearish on the yellow metal.  Investors are portrayed as beset by doubts about owning gold and worried that they will be regarded as “crackpots” if they disclose their predilection for gold ownership.  If the article had been rampantly bullish, it would have quoted gold investors bragging about their investment acumen and predicting further huge price gains.  A bullish article would have also featured photos of small time “joe six pack investors” lined up outside of bullion dealers, desperately clutching handfuls of dollars to convert into gold.  We are not even close to classic signs of a top in the gold market.

SmartMoney notes that “people are buying gold in record amounts, but in many cases they don’t really feel good about it…Others fear that they’ll be targets for robberies or scams, or be branded as crackpots by their friends and neighbors”.  Although SmartMoney mentions the huge growth of the SPDR Gold Shares Trust (GLD), ownership of gold by Americans is still small, representing only one-eighth of all bullion and coins in the world.

SmartMoney also plays down any further upside movement in gold stating that “Of course, a further price surge isn’t inevitable or even, in the eyes of some professional investors, probable.”

The “Magazine Cover Indicator” in this case represents a solid buy signal for gold based on SmartMoney’s bearish article.

Whether one believes in the “power of magazine covers” or not, the fundamental reason for owning gold remains intact – preserving the purchasing power of accumulated wealth.  The value of paper dollars is under ferocious assault by both the government and a financial system that must inflate to survive.

The only government response to the debt crisis has been to add more debt.  The Government budget proposal for fiscal 2012 has the United States borrowing almost half of the entire amount to be spent next year.  The proposed budget requires deficit financing by the United States of an unimaginable $1.65 trillion, or 44% of proposed spending of $3.73 trillion.  Even more disconcerting, a large proportion of the deficit will be funded by the Federal Reserve creating dollars via “quantitative easing”.

Governmental, private and corporate indebtedness has reached levels that make repayment mathematically impossible.  Deflation and debt collapse is not an option being entertained by the government nor is it an option that most Americans would select over inflation.   The nation needs inflation to prevent a level of defaults that would make the Great Depression look like a minor recession.  When this dark reality becomes obvious, gold will have no upside limit.

Filed Under: Featured, Gold Tagged With: , , ,

GLD Gold Holdings Sixth Largest In The World, SLV Holdings Show Small Decline

February 10, 2011 by Leave a Comment

The SPDR Gold Shares Trust (GLD) and the iShares Silver Trust (SLV) both registered small declines over the past week as the price of gold and silver recovered some ground.

Holdings in the GLD declined by .71 tonnes compared to a decline of 2.43 tonnes in the previous week.  Total holdings have now declined by 4.2% or 54.28 tonnes since the start of the new year.  The GLD currently holds 1,226.44 tonnes or 39.4 million ounces of gold valued at $53.8 billion.

Since launching in November 2004, the Gold Shares Trust has grown very rapidly and is now one of the largest gold holders in the world.  The latest stats show the GLD holding 172.34 more tonnes of gold than China at 1,054.1 tonnes.  From zero at its inception, the GLD has become the world’s sixth largest holder of gold in less than seven years.

World Gold Holdings January 2011 - source: World Gold Council

The GLD came into existence at a very auspicious moment in financial history.  As the worst financial crisis since the Depression unfolded, some of the country’s largest banks failed. The entire financial system seemed to be heading for collapse.  Trillions of dollars in government aid stabilized the banking industry but there were plenty of nervous investors who viewed gold as the last monetary refuge.

Gold does not have the inherent counter-party risk that exists with paper financial assets.  An investor purchasing gold does not have to worry about being bailed out of a gold investment.  Gold and silver have intrinsic value that rapacious governments cannot destroy.

The SPDR Gold Share Trust opened the market to a flood of new buyers who were enticed by a very easy and low cost purchase process. Prior to the GLD, it took a dedicated gold buyer to search for a dealer, check credentials, physically drive to the dealer to pick up a gold purchase, followed by another trip to the safe deposit box.  Commissions on the GLD were minimal compared to the markup at dealers.  The GLD made buying gold simple with low markups and little transaction friction.  Investors, many of whom had never before owned gold, rushed into the GLD which became the fastest growing ETF in history.

The GLD launched in November 2004 when gold was trading at approximately $445 per ounce.  Shortly afterward, gold entered a long term rise concurrent with the geometric increase in GLD gold holdings.  The price of bullion tripled to the current level of $1361.

GLD and SLV Holdings (metric tonnes)

9-Feb-11 Weekly Change YTD Change
GLD 1,226.44 -0.71 -54.28
SLV 10,370.22 -30.38 -551.35

Silver holdings in the iShares Silver Trust (SLV) declined by 30.38 tonnes over the past week compared to a decline in the previous week of 47.10 tonnes.  The year to date decline of 551.35 tonnes represents a 5% drop in silver holdings.    The SLV has declined by a very modest 2.5% from its high of $30.40 at the beginning of the year.  After a huge gain of 67% in the price of silver since late last year, it is normal to see price consolidation before another advance.

Filed Under: Featured, Statistics Tagged With: , , , , , ,

GLD and SLV Holdings Decline as Investors Ponder Next Move in Gold and Silver

February 3, 2011 by 1 Comment

Both the SPDR Gold Share Trust (GLD) and the iShares Silver Trust (SLV) registered minor declines over the past week.

Holdings in the GLD declined by 2.43 tonnes compared to a decline of 21.85 tonnes in the previous week.  Since the start of the year, total holdings have declined by 4.2% or 53.57 tonnes.  The GLD currently holds 39.5 million ounces of gold.

The holdings of the GLD currently have a market value of $52.7 billion, making the GDL a very significant presence in the gold market.   The market cap of the GLD  far exceeds that of major gold producers such as Goldcorp (GG) at $30 billion, Newmont Mining (NEM) at $27.4 billion and Randgold (GOLD) at $7.1 billion.

Gold has now made three failed attempts to decisively pierce the $1400 level since last November, forming a triple top in the process.  The failure to breakout to new highs and the large price gain of $250 per ounce since last July has motivated some nervous selling by gold investors.  A look at the one year chart shows that gold’s short term momentum has faltered as prices breached the 14 day moving average.  The next important test will be at the 200 day moving average which gold has traded above for the past two years.

1 YEAR GOLD PRICE - COURTESY KITCO.COM

Despite the recent minor setback in gold prices, the long term trend of gold remains intact technically and fundamentally.

GLD and SLV Holdings (metric tonnes)

2-Feb-2011

Weekly Change

YTD Change

GLD

1,227.15

-2.43

-53.57

SLV

10,400.60

-47.10

-520.97

Silver holdings in the iShares Silver Trust (SLV) declined by 47.1 tonnes over the past week compared to a decline in the previous week of 127.6 tonnes.  The year to date decline of 520.97 tonnes represents a 4.7% drop in silver holdings which trails the 7.8% year to date decline in the price of silver.  The SLV has declined by 9% from its high of $30.40 at the beginning of the year.  After a huge gain of 67% in the price of silver since late last year, it is normal to see price consolidation before another advance.

In this writer’s opinion we have not seen a parabolic blow off type price move, nor have we seen the excited entry of first time silver buyers lured by stories of rising prices.  One of the sentiment gauges that I use involve noting how many of my friends and clients ask or offer unsolicited advice on a specific investment category.  Thus far, not even one person has mentioned silver.  Despite the huge advance in silver prices, public awareness seems minimal, implying long term bullishness.

SLV - courtesy yahoo finance

Filed Under: Featured, Statistics Tagged With: , , , , , , , ,

Gold’s Role in India’s Inflation Battle

January 21, 2011 by 1 Comment

In India, the problem with inflation shows most clearly when you examine the country’s current level of gold trade and importation. Shipments have increased to 800 metric tons from 557 tons in the last year. That is an all time high and forecasts say that the number is still rising.

The purchase of all this gold shows clearly the concerns that investors have regarding the local economy and the central bank’s battle with inflation.

Why Buy Gold?

“Gold is being used as a store of value to protect against never ending inflation,” according to the head of fixed income at Canara Robeco Asset Management Ltd., Ritesh Jain.

It makes sense, since in India gold is historically and culturally tied to the concepts of wealth and prosperity. Investors are used to buying into gold either as a physical asset or on the exchange market where gold can be purchased and traded without ever taking physical possession. And while the value of gold has climbed in India—the value of the rupee and of the bonds that support the central bank have not done nearly as well.

The Inflation Situation

In the last year alone, more investment dollars flowed out of India’s economy than in. Global funds sold $250 million more shares in Indian companies than they bought. Meanwhile, inflation has been on the rise, such that food prices have risen by 18.3% in the final weeks of 2010.Citizens and politicians alike are calling for actions to be taken to curb this inflation—all the while investing in more and more gold.

Filed Under: Gold Tagged With: , , ,

China’s Emerging Influence in the Gold Market

January 18, 2011 by Leave a Comment

China and its people have a long held interest in the gold market. The country’s history has been marked by periods of unrest, and its people have regularly chosen to heed history’s warnings when it comes to investment. Their general preference has been for investments that they perceive as safe and solid, as opposed to paper instruments. Thus, their top two investment choices are gold and real estate.

During the course of 2010, China’s gold imports grew nearly 500 percent. What is most surprising is that we have this information at all. Normally China is quite secretive about their gold investments and imports.

China Comes Out

Further information on the Chinese gold market reveals that turnover on the Shanghai Gold Exchanges for the first three quarters of 2010 exceeded total global identifiable demand. The number of individual customers on the exchange neared 1.6 million.

When you also consider the fact that China is the world’s top gold producer and the recent joint announcement of ministry promotion of the gold market—its easy to see why China is considered to be a force to be reckoned with in the 2011 gold investment market.

Searching for Gold

The gloves are finally off after all. China has announced its first gold mutual fund and investment demand in the country is increasing from both individual and governmental sources. The country has positively connected their future development of the gold market to the competitiveness of financial markets and made it known to the world that they don’t plan to keep their movements quiet anymore.

Sensible investors and analysts are taking China’s actions into account when trying to predict the movements of the gold market for the coming year. After all, no one wants to ignore one of the biggest players in the room.

Filed Under: Gold Tagged With: , , ,

Are Investors Abandoning Gold?

January 17, 2011 by 5 Comments

The Associated Press reported that gold and silver are responding to an improved U.S. economy by losing ground in the investment market. Since the start of the year, gold has dropped nearly $50 per ounce, measuring a decline of about 3.5% while silver has fallen by $2.31 per ounce, or 7.5%.

Some experts are responding by beginning to question the continued duration of the record interest in gold and other precious metals. They’re looking for signs that the bubble might pop in the face of predictions about gold’s strength.

Looking at Safety?

In their article, the Associated Press looks at gold and silver prices and suggests that as a consequence of the potential comeback in the U.S. economy, investors are willing to risk abandoning safe haven investments in order to seek out something a little more risky.

During the recent years of economic uncertainty, many investors responded by moving their funds into precious metals like gold and silver. Now that things are looking up, investors are reconsidering that choice in order to seek out more lucrative investment opportunities.

Looking to the Future

It is only the third week of 2011, however, so it remains to be seen whether this movement is real or perceived. No doubt, the state of the economy will give us some hints.

After a decade of stellar performance for gold, we may need to reassess based on the changes in the world economy, if not the production levels of the metal itself. In the meantime, however, gold will remain the commodity to watch and enjoy among investors everywhere.

Filed Under: Gold Tagged With: ,