October 5, 2022

Gold and Silver Prices Push To New Highs, Gold Silver Ratio Drops To 28 Year Low

Gold and silver prices, as measured by the London PM Fix Price, moved to new highs on the week.

Gold, as measured by the closing London PM Fix Price, gained $16 per ounce on the week and hit an all time high of $1,447 on Thursday.  After soaring 30% last year, investors still have plenty of reasons to allocate part of their portfolio to precious metals.

Precious Metals Prices
Fri PM Fix Since Last Recap
Gold $1,436.00 +16.00 (+1.13%)
Silver $37.68 +2.53 (+7.20%)
Platinum $1,752.00 +32.00 (+1.86%)
Palladium $754.00 +27.00 (+3.71%)

Silver was once again the standout performer among the precious metals, gaining $2.53 per ounce on the week.  The price of silver has now risen by over 10% in the past two weeks and is up from a yearly low of $27 in late January.  Silver has far outpaced the gains in gold, which has resulted in a decline in the gold/silver ratio to 38, which is the lowest since late 1983.  A return to the long term historical gold/silver ratio would result in silver prices approaching $100 per ounce.

SILVER - COURTESY STOCKCHARTS.COM

The surge in silver prices caused the CME to increase margin requirements on silver futures, which contributed to a pullback in prices on Thursday.  The move by the CME was seen by some as a manipulation tactic to bring down the price of silver, but increased margin requirements are common when prices are rapidly increasing.  Small and underfunded speculators may have to liquidate, but in the long term silver will merely move from weak hands to strong hands.  Increased margin requirements on highly leveraged positions can produce a short term sell off, but it does nothing to change long term fundamentals.

Platinum and palladium, which both lost over 3% last week, gained on the week as fears of reduced industrial demand were eased by estimates of the huge reconstruction cost in Japan.  The rebuilding of Japan is likely to result in higher prices for all types of commodities and an increased rate of global inflation.

Gold and Silver Prices Gain on Week

As measured by the London PM Fix price, gold and silver prices gained on the week after declining approximately 1% each in the previous week.  Gold gained $8.50 per ounce on the week to $1,420.00.  Silver was the stand out gainer on the week with a 3% or $1.05 per ounce gain.   As the situation in Japan and Libya stabilized somewhat, the recent panic selling in financial markets subsided as bargain hunters moved in, although in late trading, stocks gave up much of their gains.  Gold and silver also pulled back slightly in New York trading with gold at $1417.80 and silver at $35.10.

As market analysts worried about the potential for slower economic growth due to the disaster in Japan, classic industrial metals saw further price erosion after significant losses in the prior week.  Platinum fell by $57 on  the week and palladium dropped by $27.  Over the past two weeks, platinum has declined by $108 or over 6% while palladium was off $84 for over a 10% loss.

Precious Metals Prices
Fri PM Fix Since Last Recap
Gold $1,420.00 +8.50 (+0.60%)
Silver $35.15 +1.05 (+3.08%)
Platinum $1,720.00 -57.00 (-3.21%)
Palladium $727.00 -27.00 (-3.58%

As discussed last week , the fundamental forces propelling gold higher remain intact.  The devastation in Japan will require massive amounts of additional borrowing by a government already reaching the limits of its borrowing ability.  Expect Japan to follow the policy of the Federal Reserve with massive amounts of quantitative easing.   The currencies of Japan, Europe and the United States all face a loss of real purchasing value as governments engage in money printing to meet spending and borrowing needs that have spiraled out of control.

The toxic combination of  low economic growth, weak personal incomes and public resistance to additional tax increases have left governments with no other choice than to engage in massive expansion of the public debt.  As constraints on governments’ borrowing ability have grown, the last resort option of money printing will continue to result in the debasement  of currencies.  Increases in the price of precious metals have no upside limit under this scenario.

Silver remains the primary investment choice of many as the metal reasserts itself in relationship to the price of gold.  If the very long term historical gold silver ratio reasserts itself as many expect, the price of silver could easily close in on the $100 per ounce level.

SLV - Courtesy yahoo finance

Gold and Silver Prices Hold Gains, Rise in Late Trading

Gold and silver prices declined slightly on the week, as measured by the closing London PM Fix prices.  Gold finished the week at $1,411.50 for a loss of $15.50 while silver declined fractionally by 33 cents to close at $34.10.  However, as markets assessed the impact of a slowing world economy, higher inflation, higher oil prices and the massive earthquake in Japan, prices for gold and silver saw significant price improvement in late Friday New York trading.  Gold moved up $9.20 to $1,421.30, while the silver price rose $.60 to $35.90.

In a week of tumultuous economic and political news, platinum and palladium saw significant declines on the week as investors worried about reduced industrial demand in the face of a slowing world economy.

Precious Metals Prices
Fri PM Fix Since Last Recap
Gold $1,411.50 -15.50 (-1.09%)
Silver $34.10 -.33 (-0.96%)
Platinum $1,777.00 -51.00 (-2.79%)
Palladium $754.00 -57.00 (-7.03%

The minor price consolidation for gold and silver over the past week are impressive considering the strong gains of the previous month.  Strong bull moves are never straight and price corrections should be seen as an opportunity to increase positions.

None of the concerns that have propelled the precious metals higher have been resolved.  There is a strong probability that one or more of them will blow up putting major financial pressures on governments that are already staring into the abyss due to untenable levels of debt.  Which event will trigger another financial crisis is impossible to predict, but here’s a quick rundown of the obvious suspects:

1.) The final implications of the massive Japan earthquake will take weeks to assess but is certain to add huge financial stress to a country already overwhelmed by the highest debt to GDP ratio in the world.  The Japanese central bank has already indicated it is ready to loosen monetary conditions to calm financial markets, which may be a signal that they will follow the U.S. Fed’s lead and engage in a significant amount of quantitative easing or money printing.  The cost of credit default swaps on Japanese government debt widened significantly reflecting the need for increased borrowings by a government already overwhelmed by indebtedness.  As investors become increasingly alarmed at the prospects of default on government debt and currency debasement, the flight to gold will accelerate.

2.) The sovereign debt crisis in Europe continues to spiral towards a crisis as the European Central Bank attempts to solve a debt crisis with more debt.  Monetary authorities worldwide are out of standard policy options and will follow the lead of the U.S. Fed by printing money.   The implications of money printing on a global basis removes all constraints on the appreciation limits of the precious metals.

3.) The largest bond fund in the world dumps all longer dated U.S. Treasury securities. Bill Gross, manager of PIMCO, the largest bond fund in the world warns that when QE II stops in June, there will not be enough buyers for government debt, leading to a funding crisis for the U.S. Government.  If one of the planet’s smartest and biggest bond investors thinks it’s time to sell U.S. Treasuries, the risk of contagion becomes substantial.  Foreign governments currently purchase half a trillion dollars of U.S. debt every year and are becoming alarmed by Fed policies which make their debt investments look riskier by the day.  How long will it be before other major investors in U.S. debt decide to follow Bill Gross’s lead and initiate a massive sell off in U.S. treasuries?

4.) Oil prices have pulled back in recent days but the situation remains volatile.  A small group of protesters in Saudi Arabia were immediately dispersed with a hail of rubber bullets from security forces, an action that can only further inflame the passions of those who feel repressed by regimes in Saudi Arabia and other oil producing countries.  Chaos in Saudi Arabia would quickly put the world economy back into an economic meltdown that governments may be unable to contain.

SILVER - COURTESY STOCK CHARTS.COM

The last upward move in silver last four months from September through the end of 2010 with a price gain of over 70%.  After a brief correction early in the year, investor and industrial demand pushed silver to a new yearly high.  A rally equivalent to that of last year would drive silver up to the $50 level by June.

iShares Silver Trust Holdings Continue to Skyrocket

Silver holdings in the iShares Silver Trust (SLV) continued to skyrocket, while holdings of gold in the SPDR Gold Shares Trust (GLD) experienced a modest increase.

The iShares Silver Trust (SLV) holdings increased by 209.54 tonnes in the latest week.  The prior two weeks have seen increases of 189.29 tonnes and 164 tonnes.  Total holdings of the SLV are now 52.49 tonnes higher than at the beginning of the year.  The SLV holds 352.8 million ounces of silver valued at $12.76 billion.

The holdings of silver in the iShares Silver Trust have now exceeded peak holdings reached at the beginning of the year.  Silver has moved relentlessly higher in price since last August.  After a brief price correction in January which brought silver down to the $26 level, silver prices have exploded to more than $36 per ounce, a gain of 38% in less than two months.

Given the huge run up in the price of silver, it is not surprising to see holdings of the SLV increase dramatically.  The SLV is a proxy for investors who chose to invest in silver without the cost and inconvenience of holding physical silver.  Purchasing the SLV allows an investor to take an immediate position in silver and without the markups associated with physically purchasing bars or coins.

The annual expense ratio of the SLV is only 0.5% compared to common markups of 5% to 10% when purchasing physical bullion or coins from a dealer.  The SLV has been wildly popular with investors since it was launched and has provided huge returns to patient investors.   The SLV has risen from below $10 in October 2008 to its closing price today of $35.27 for a gain of over 250%.  A purchase of a thousand shares of the SLV at the low of $9.13 in October 2008 would have resulted in profits of $26,140.

SLV - Yahoo Finance

It has been over 30 years since silver hit its all time high price of $48.70 in January 1980.  Huge investment and industrial demand as well as physical shortages of silver are all factors that could easily push silver to a new all time high.  Silver has been making up for lost time and has dramatically outperformed the price movement in gold.  A reversion to the centuries old gold silver ratio could easily push silver prices towards the $100 per ounce level.

GLD and SLV Holdings (metric tonnes)

9-March-11 Weekly Change YTD Change
GLD 1,217.30 +6.34 -63.42
SLV 10,974.06 +209.54 +52.49

Holdings in the SPDR Gold Shares Trust (GLD) saw a jump in holdings of nearly 7 tonnes on Monday of this week, which is the largest increase in daily holdings seen in the past two months.  The GLD increased holdings by over 6 tonnes for the week after modest declines in the previous two weeks.   Total GLD holdings are still lower than the beginning of the year by 63.42 tonnes.  The GLD currently holds 39.14 million ounces of gold valued at almost $56 billion.

Since its launch in November 2004 when gold was trading at $445 per ounce, the GLD has been an extremely profitable investment.  As the price of silver broke out and hit new highs, gold has still not decisively broken through its trading range in the low $1400’s.   Gold made a strong move up from $1150 last August and has been consolidating sideways since breaching the $1400 level.

As Silver Prices Soar, Silver Coins Get Smaller

Ten years ago, one ounce silver bullion coins could be purchased for around $7 each. This reflected market silver prices below the $5 level. As recently as one year ago, the prices for one ounce bullion coins had risen to around $18 each. Following the dramatic rise in the silver price experienced in the last five months, newly minted one ounce silver bullion coins from a major world mint are now priced around $39, assuming a purchase in quantity.

Silver has been called “poor man’s gold”, but after the significant rise in price, even the traditionally smallest sized coins are becoming expensive. Thus, it was only a matter of time before smaller sized coins would be introduced.

Last month, the Perth Mint of Australia began selling one-tenth ounce Silver Koala coins. Previously, this series had been offered in sizes ranging from one-half ounce to 1 kilo. Other numismatic and bullion coin offerings from the Perth Mint have also been available in sizes starting at one-half ounce, but this seems to be the first instance that a one-tenth ounce size has been available.

As will generally be the case with silver products, the smaller weight offerings carry a larger premium than than larger weight products. This can be the result of the fixed costs associated with manufacture or volume discounts which may be available for purchases in bulk quantities.

The Perth Mint’s website shows the one ounce 2011 Silver Koala priced at US $41.88, reflecting a premium of $5.57 or 15.34%. The one-tenth ounce version is priced at $13.76, reflecting a premium of $10.13 or 279%! (All prices at time of post.)

Obviously when purchasing silver for investment purposes, it makes sense to pay the lowest premium possible. That way, you will get more silver for your money and won’t risk seeing contraction of premiums offset gains.

The move by the Perth Mint to smaller sized silver coins is certainly an interesting one. How long will it be before other world mints follow suit?

Gold Price Hits All Time High, Silver at 31 Year High

The Week in Precious Metals

Gold and silver continued their winning ways this week. Measured by the closing London PM Fix prices, gold gained $24.50 or 1.75%, while silver rose $1.89 or 5.81%. On an intraday basis, the gold price hit an all time high of $1,440.31 while silver traded to a new 31 year high at $35.55.

Gold’s advance for the week came after solid gains of $19 per ounce in the previous week.  Concerns about a weak dollar, skyrocketing oil prices and continuing turmoil in oil producing nations in the Middle East all contributed to reinforce the importance of gold for wealth diversification and as a hedge against a range of adverse economic conditions.

The ongoing surge in oil prices does not reflect an actual shortage in crude production.  Inventories remain robust and excess producing capacity seem adequate to replace all of Libya’s roughly 2 million barrels a year of production.  Rising oil prices reflect the fear that social unrest will spread to Saudi Arabia, the King of oil producers.

Saudi Arabia is surrounded by countries that are in massive social, religious and economic upheaval.   The contagion of violence and revolution has spread throughout the area included Algeria, Libya, Tunisia, Iran, Yemen and Bahrain.  If Saudi Arabia follows the path of its neighbors, the price of oil would quickly be on its way to $200 a barrel.  Small protests in the Saudi Kingdom this week may be a prelude to much larger upheaval in the months ahead.

Oil - Stockcharts.com

The money printing and inflation creation campaigns of the Federal Reserve seem to be giving the struggling U.S. economy some traction and there have been discussions by Fed members regarding the termination of quantitative easing after the current $600 billion round of money printing ends in June of this year.  However, much higher oil prices would quickly put the U.S. economy back into recession since consumer disposable incomes would be drastically reduced.

The Fed’s only easing option to fight another recession is to institute another round of money printing, which at some point leads to an inflationary spiral.  In Senate testimony this week, Fed Chief Bernanke admitted that “sustained rises in the prices of oil or other commodities would represent a threat both to economic  growth and to overall price stability.”  It is no surprise that gold is looking like a sensible option to more and more investors.

Precious Metals Prices
Fri PM Fix Since Last Recap
Gold $1,427.00 +24.50 (+1.75%)
Silver $34.43 +1.89 (+5.81%)
Platinum $1,828.00 +37.00 (+2.07%)
Palladium $811.00 +26.00 (+3.31%

Platinum regained some of its luster with a gain of $37 after last week’s loss of $45, while palladium was up $26 following last week’s loss of $62.

After a gain of almost 2% last week, silver continued its sharp upward price movement and gained $1.89 or almost 6% on the week.  On a percentage basis, silver’s gain on the week was almost three times the gain seen by gold.  Since last summer, silver has vastly outperformed gold, a trend that may continue.

If the gold to silver ratio returns to its long term historical trend of 16, the price of silver would approach $100 per ounce at the current price of gold.

The price of the ProShares Ultra Silver (AGQ)  jumped $23 points on the week to close at $204.19 while the popular iShares Silver Trust (SLV) jumped $2 dollars or 6.2%, closely tracking the price of the metal.

AGQ - Yahoo Finance

Historical Gold Silver Ratio Predicts $100 Silver Price

The gold silver ratio chart below shows the dramatic fashion in which silver has been outperforming gold since last August.  The gold silver ratio is calculated by dividing the price of gold by the price of silver.  A declining gold silver ratio indicates that silver has been outperforming gold.   The gold silver ratio has declined from 65 last summer to a current level of 41.

Since August 2010 gold has moved up 22% from the $1,175 level while silver has soared 92% from the $18 range.  Does the declining gold silver ratio indicate that silver prices are due for a correction or is this a fundamental change in the price relationship?

The gold silver ratio has averaged around 60 since the mid 1970’s.  In January 1980, as silver hit its peak price of $48.70, the gold silver ratio briefly hit 16, but rapidly rose as the Hunt brother’s attempt to corner the silver market came undone and silver prices collapsed.

Gold Silver Ratio - Courtesy Stockcharts.com

Will the current decline in the gold silver ratio continue?  From a very long term historical perspective, a gold silver ratio in the 16 range has been the norm.  Since ancient times, it has typically taken 16 ounces of silver to purchase one ounce of gold.  Interestingly, the earth’s  reserves of silver exceeds that of gold by roughly 16 times.  If this ultra long term relationship were to reassert itself, silver would sell for approximately $90 per ounce based on the current price of gold.  With gold at $2,500 per ounce, silver would have a value of $156 per ounce at the historical gold silver ratio of 16.

The fundamental reason that may drive the gold silver ratio back to the 16 range is growing demand by small investors.  Silver, known as the poor man’s gold has seen a huge surge of public demand, as evidenced by record sales of the Silver Eagles.

Increasing public recognition of the need to preserve wealth against paper currencies will continue to propel silver to historic highs.  Simply put, silver is more affordable to the average buyer who cannot afford the higher priced Gold Eagles.  Silver has a lot of catching up to do and we are probably in the early stages of a fundamental reversion to a lower gold silver ratio which will send silver prices soaring past $100 per ounce.

Gold and Silver Prices Higher as Platinum and Palladium Sell Off

As turmoil reigned in the Middle East and worries mounted over the reduction of oil supplies, gold and silver proved their safe haven status as both moved higher in price.

After a very solid gain of $1.94 per ounce last week, silver continued its upward move with another gain of $.60.  The closing London Fix Price for silver was $32.54 for a gain of 1.88% on the week.   The normal price consolidation and pullback in silver that extended from the beginning of the year into the end of January was the setup for a solid breakout into new highs.  Silver has now advanced over 20% from the lows of January.

SILVER - COURTESY STOCKCHARTS.COM

Besides the safe haven/currency alternative lure of silver, the fundamentals in silver are forecasting further dramatic price gains.   There have been numerous reports documenting physical shortages of silver as well as huge investment demand in the U.S., India and China.

One solid indication of the huge demand for physical silver is evidenced by the backwardation in prices.  Typically, the forward price of a commodity will exceed the cash price due to the expenses of insurance, warehousing and inventory financing.  When a commodity has a normal upward pricing curve to reflect a higher futures cost, the situation is termed contango.  Backwardation, the unusual case where the cost of the physical commodity is higher than future prices, is a classic indicator of surging demand.  Another indicator of the great demand for physical silver is the four year low of Comex warehouse silver.

Precious Metals Prices
Fri PM Fix Since Last Recap
Gold $1,402.50 +19.00 (+1.37%)
Silver $32.54 +0.60 (+1.88%)
Platinum $1,791.00 -45.00 (-2.45%)
Palladium $785.00 -62.00 (-7.32%

Gold also continued its upward move with a gain of $19 per ounce after an advance of $19.50 in the previous week.  To understand the wealth preservation appeal of gold, one needs only to look at the exponentially increasing level of  U.S. debt.  Ultimately, the staggering amount of sovereign debt can be serviced only through inflation and dollar debasement which is what the Federal Reserve is currently orchestrating through quantitative easing (money printing).

US NATIONAL DEBT - THE ROAD TO FINANCIAL OBLIVION

The U.S. dollar also appears to be losing its cache as the “safe haven” currency.  Despite the unprecedented turmoil in the Middle East and the rise in oil prices, the U.S. dollar has weakened over the past two weeks.  By comparison, during the financial crisis of 2008, the U.S. dollar appreciated 24% against other major currencies.

The surge in oil prices has led to concerns that the U.S. and world economies will see much lower growth as higher oil prices devastate consumer disposable income.  A weakened world economy would probably lead to lower demand for industrial metals such as platinum and palladium which both declined this week.  Platinum sold off by $45 and palladium was rocked by a $62 loss from the prior week.

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

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.

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

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%