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Precious Metals Prices Stumble In Wild Trading Week

May 8, 2011 by 1 Comment

Commodity and precious metal prices tumbled this week, with gold and silver prices snapping a streak of four consecutive weekly increases. Following the recent run up in prices, there had been some anticipation of a correction. In addition, there were concerns that the Fed’s announcement of the end of QE2 would result in an end to the flood of cheap money which has fueled the rise of commodities.

In the precious metals group, silver was the biggest loser with a drop of almost 30% from last Thursday’s closing London PM Fix Price.  (The London markets were closed on Friday, April 28th.)  The losses in silver far outpaced the declines in other precious metals and many place the blame squarely on the rapid fire multiple margin increases by the COMEX for trading silver futures (See How The COMEX Crashed The Silver Market).

Gold, platinum and palladium also had a tough week with respective price declines of 3.19%, 2.51% and 7.21%.

Precious Metals Prices
PM Fix Since Last Recap
Gold $1,486.50 -49.00 (-3.19%)
Silver $34.20 -14.50(-29.77%)
Platinum $1,789.00 -46.00 (-2.51%)
Palladium $721.00 -56.00 (-7.21%)

Precious metals have had previous serious declines without affecting the long term upward move in prices (see Measuring Declines From The High For Gold and Silver).  Overextended markets will correct but the fundamental forces pushing precious metal prices higher have not changed.  While dollars and other paper currencies can be produced in infinite quantity, the supply of gold, silver and commodities are finite.

Despite the Fed’s promise to stop printing money and its pledge of supporting a “strong dollar”, the dollar has had only a feeble recovery and is close to its all time lows.  The markets clearly have no confidence in Chairman Bernanke’s words and the weak dollar proves it.  Every bull market experiences temporary pullbacks and the precious metals are no exception.  Long term investors should view the latest price consolidation as another potential opportunity to increase positions.

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Precious Metals Soar – Thank You Ben Bernanke

April 29, 2011 by Leave a Comment

As predicted on Monday, the Federal Reserve policy meeting and subsequent press conference by Fed Chief Ben Bernanke had the potential to cause an explosive move up in the precious metal markets. (see Federal Reserve May Cause Stampede Into Gold and Silver This Week)

At the conclusion of the Bernanke press conference it became clear that the Fed would maintain its policies of cheap credit and debasement of the dollar.  Subsequent economic reports showed a slowing economy, rising food and energy prices and a slowdown in consumer spending.  This was all the markets needed to hear and precious metal prices exploded upwards on the week.

Silver reached an all time high of $49.75 on Monday before pulling back on Tuesday to $44.60 and then resuming its upward streak after the Bernanke press conference.  The closing London PM Fix Price for silver settled at $48.70 on Thursday.  The London markets were closed on Friday, but in New York spot trading silver ended the week at $48.00, up from last week’s close at  $46.26.

Precious Metals Prices
Thurs PM Fix Since Last Recap
Gold $1,535.50 +31.50 (+2.09%)
Silver $48.70 +2.44(+5.27%)
Platinum $1,835.00 +23.00 (+1.27%)
Palladium $777.00 +12.00 (+1.57%)

As measured by the London PM Fix Price, gold closed Thursday at $1,535.50.  London markets were closed on Friday, but in New York trading, gold ended the day at $1,566.70, soaring $29.90.   From last week’s London Fix Price close of $1,504.00, gold exploded upwards for a gain of $62.70.

As precious metal investors racked up huge gains on the week, many were probably thinking of sending a thank you note to Ben Bernanke.  The reality is different.  Most investors, no matter how bullish they may be on precious metals, are probably diversified and do not have a 100% portfolio allocation to gold and silver.

Investor gains on precious metals, while helping to preserve wealth, may have only partially offset the wealth destruction caused by zero interest rates and falling home prices.  The majority of Americans have the bulk of their wealth tied up in their personal residence and bank accounts and  have seen major declines in their home equity and close to a zero return on savings.  Fed policies are driving more and more investors into the precious metals markets and soaring prices are proof of that.

As noted the London markets were closed on Friday, April 29.  Precious metals prices soared on Friday in New York trading with gold ending at $1,566.70, silver at $48.00, platinum at $1878.00 and palladium at $777.00.

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Physical Silver Shortage Worsens Due To Mint Rationing and Surging Investment Demand

April 26, 2011 by 1 Comment

The inability of the US Mint to meet public demand for gold and silver bullion products was discussed at a recent House Financial Services Subcommittee hearing.  Testimony by industry experts revealed that the US Mint was losing an estimated one-third of potential bullion sales because they cannot meet demand.

For the past several weeks the US Mint sales figures for Silver Eagle bullion coins have been essentially flat. The US Mint sells its bullion products in bulk to authorized purchasers (AP’s).  The AP’s resell the bullion coins to dealers who then sell the products to the public.  The US Mint has been rationing the 2011 Silver Eagle bullion coins to AP’s, leaving one to conclude that the flat sales of Silver Eagles have been the result of Mint production constraints or supply shortages, rather than flat or reduced market demand.

On past occasions, the US Mint has cited the lack of adequate supplies of silver planchets as the cause for the continuing rationing of silver bullion coin sales. Earlier this year, the Royal Canadian Mint admitted that they were having significant problems in sourcing silver since huge demand was outpacing silver supply.

Combine rationing and surging demand and the obvious result is a severe shortage of  physical gold and silver bullion products.  Confirming this situation, American Precious Metals Exchange (APMEX), announced yesterday that they were seeking to purchase US Mint bullion products from their customers in order to meet “recent incredible demand for gold and silver bullion products”.

APMEX, one of the country’s largest precious metals dealers, offered to purchase American Gold Eagles and American Silver Eagles at generous premiums over spot prices in order to secure inventory.  Despite the increase in the price of gold and silver, public demand obviously remains incredibly strong.

The American public has been provided with plenty of evidence that out of control deficit spending and money printing policies by the Federal Reserve are destroying the value of the paper dollar and they are acting accordingly (see Why There Is No Upside Limit To Gold and Silver Prices).  A loss of confidence in paper money is fueling the rise in gold and silver prices as people seek to protect their wealth.  Any pullbacks in precious metal prices should be viewed as another major buying opportunity.

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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.

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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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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: 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: 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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Gold and Silver Recap: Falling Prices

October 23, 2010 by Leave a Comment

Another Precious Week in the Market

So who’s buying on the dips then?  Gold, silver and platinum prices are all down – mainly from Friday.

But have thy really gone down?  After all, the reason that we’re being given is that the dollar’s not weakening any more.  So what’s really happening, gold going down or the dollar going up?  Temporarily up.

Precious Metals London Fix Prices
Gold $1,322.50 -45.00 (-3.29%)
Silver $23.05 -1.37 (-5.61%)
Platinum $1,673.00 -18.00 (-1.06%)
Palladium $586.00 -5.00 (-0.85%)

Gold is essentially a short on all the currencies in the world, so it does pay us to look at what those currencies are doing.  For a while it seemed that they were only agreed on one thing, they were going to get to the bottom first.  Even the British Conservative government, that relishes its tough spending talk, has said that it is monetarily expansive.

So gold can’t help but go up.  Let’s not treat it as some speculative metal that people hold when the entire world is going crazy (although it helps when the world is going crazy) but look at it as a currency among others, but one that can not be printed.

So gold is bound to get in a bit of trouble when the industrial countries decide to get serious about printing out money.  If competitive devaluation is really over then so is gold, for the next few years.  But who are we kidding?  Competitive devaluation will be there until inflation starts hitting.  Then it will be too late.  And the central banks will be buying gold as well.

Speaking of which, South Korea is starting to buy gold.  It’s all a bit odd, these Asian countries with massive foreign currency reserves (and South Korea is only the fifth largest) speaking about buying gold.  If China loses faith with the dollar, then it could get hairy.  The dollars prospects, that is, not China.

Silver has been the purer precious metal play and so almost doubled gold’s fall.  This is despite China suggesting that it will cut back on its exports by as much as 40%.  Jim Rogers, the man who first opened the eyes of many investors to commodities, has also come out as a big bull on silver.

So the dark horse is palladium, which declined the least of the metals this week.

Palladium is like platinum in that most of the production is in either the Russian Federation or South Africa. But unlike platinum, Russia has been in a price fixing operation, by buying stocks of the metal in lean times and has been offloading it.  Well these stocks are drying up.  Just like central bank stockpiles of gold started to about five years ago.  And we all know what happened then.

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Gold and Silver Recap: Are We Peaking Yet? Silver Goes on a Tear

October 15, 2010 by Leave a Comment

Another Precious Week in the Market

Last week I tried to explain the theory that gold wasn’t actually that high, the dollar was just weak.  So as to stop the hate mail, chair throwing, death threats and broken windows (how did you find my address?) I’d like to point out that this is not a reason for not holding gold.

Precious Metals London Fix Prices
Gold $1,367.50 +26.00 (+1.94%)
Silver $24.42 +2.05 (+9.16%)
Platinum $1,691.00 +8.00 (+0.48%)
Palladium $591.00 +19.00 (+3.32%)

In fact, it is one of the three reasons for holding gold. It is still not really that expensive, its just that paper money is getting progressively cheaper – as any trip to the supermarket or the gas pump will confirm.  The reason is that it’s still a minority taste, and if this is a bubble you’re safe to buy until the shoe shine boy is talking about it.  If you can’t find a shoe shine boy look for a project manager – when they start talking about gold coins then maybe it’s time to short gold.  The third reason is the optional one that we’re all doomed.  But we’ve been all doomed for the last forty years, so just concentrate on the first two.

And gold has done OK this week.  Ben Bernanke has talked about more easing and gold went up.  Towards the end of the week it dipped down again.  One of the interesting things is that the idea of currency wars has come into the open, where the large currencies all play beggar thy neighbor.  There has been no evidence of central government selling of gold.

However, gold is relatively subdued compared to silver.  Due to Nelson Bunker Hunt, it will be a long time before we can say “record highs”, but although second best may not sound so great these “30 year highs” are a big deal due to the fact that this is not some mad Texan billionaire with too much oil money.  These are diverse consumers worried about inflation.

Let’s put this in another way, silver has risen by 45.8% in dollar terms from the start of the year.  One thing that has been noticeable with silver this week has been the amount of articles from places like the Motley Fool.  Could be the chance to take a breather?  Silver has been priced weakly compared to gold in the last couple of years, but 9% in a week is looking essentially unsustainable.

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