May 7, 2024

Platinum To Gold Ratio Plunges – Is This A Buy Signal Or A New Metric?

February 7, 2012 by 1 Comment

Platinum is one of the rarest earth elements with the vast majority of deposits found in only one place on earth.  Annual platinum production is only 30 tonnes per year compared to approximately 2,800 tonnes for gold and 23,000 tonnes for silver.

Roughly 80% of annual platinum production comes from only three mines in South Africa.  Siberia and other geographically scattered locations provide the balance of annual platinum production.

Investment demand for platinum constitutes only 10% of annual demand .  Since 90% of platinum demand comes from jewelry and industrial users, the price of platinum can be very volatile.  During an economic downturn,car sales plunge and jewelry is a very discretionary purchase.  During the 2008 financial meltdown, platinum plunged by nearly two thirds of its value compared to a drop of only one third in the price of gold.

 

Platinum - courtesy kitco.com

The ongoing economic turmoil in Europe has contributed to a large drop in the price of platinum.   Last year, platinum declined from $1,887 in August to $1,354 at 2011 year end, a drop of $533 per ounce.  Although platinum has recovered to $1,609, it is considerably undervalued  when viewed through the lens of the platinum to gold ratio.  A platinum to gold ratio below 1.0 is historically a signal that platinum is selling at a bargain price.  The platinum to gold ratio is currently at .95, a level not seen since 1986.

 

Long term ratio - courtesy http://profitimes.com

 

Platinum to gold ratio - courtesy stockcharts.com

Has the long term historical significance of the platinum to gold ratio lost its relevance?  If the world plunges into a deflationary depression, platinum may wind up becoming a much greater bargain at a later date.  The more likely scenario is that a new pricing metric is not being established and that the multi-decade low in the platinum to gold ratio is a major buy signal for platinum.

The central banks of the world have made it abundantly clear that they will print and inflate their way out of the debt crisis.  Ownership of a precious metal such as platinum is one method of maintaining a store of value against depreciating currencies.

Numismatic versions of the platinum coin can be purchased by investors directly from the U.S. Mint.  The 2011 Proof Platinum Eagle has been available since May 26, 2011 with a maximum mintage of 15,000 pieces.  The current price to purchase the 2011 American Eagle one ounce platinum proof coin from the U.S. Mint is $1,892.00 with no order limit.  No sales tax is charged on the purchase and a credit card can be used to pay for the coins.

According to coinupdate.com, the United State Mint may bring back the American Platinum Eagle bullion coins.  The U.S. Mint has not minted the bullion versions of the platinum coin since 2008.  Production of the American Platinum Eagle is not required by law, as is the case for the American gold and silver eagles.  Production of the platinum coins are at the discretion of the Secretary of the Treasury.  The 2008 and earlier bullion version of the one ounce American Platinum Eagle coins are available from coin dealers and are currently priced at around $1,860 each.

Filed Under: Bullion Sales, Featured, Gold, Other Precious Metals, Platinum, Silver, US Mint Tagged With: , , , , , , , ,

Silver ETF Holdings Increase Slightly In January As The Stealth Silver Advance Continues

February 3, 2012 by Leave a Comment

Silver has started off the new year with a scorching performance

For the month of January, silver gained $5.42 per ounce closing at $33.60, up 19.2% from the 2011 closing price of $28.18.  January’s gain has more than erased the 8.1% loss on silver during 2011.  Silver has far outperformed gold which closed at $1,738.00 on January 31st, up 10.4% on the month from the 2011 closing price of $1574.50 (all prices from the closing London PM Fix Price).

The large gain in silver’s price has been somewhat of a stealth advance, with little coverage in the press.  In addition, an apathetic response to silver by investors can be seen in the volume statistics and bullion holdings of the iShares Silver Trust (SLV).

Silver holdings of the iShares Silver Trust reached a record 11,390.06 tonnes on April 25, 2011, shortly before silver reached its peak price of $48.70 on April 28th.  The value of silver held by the SLV on April 28th was $17.3 billion compared to its current value of $10.4 billion, representing a decline in both the price of silver and total ounces of silver held by the Silver Trust.

Although silver prices have soared since the beginning of the year, holdings of the SLV have increased only modestly.  At the end of 2011, the SLV held 9,605.79 tonnes of silver compared to 9,608.95 on January 31, 2012, a negligible increase of only 3.16 tonnes.  The small increase in silver held by the iShares Silver Trust indicates that investors are not participating in the silver rally, a very bullish sign from a contrarian point of view.

The silver ETF is structured in a somewhat complicated manner in which authorized participants (AP) buy or sell shares of the SLV depending on the discount or premium of the SLV to the market price of silver.  High buying demand for the SLV results in premium pricing which results in the accumulation of physical silver by the trust due to hedging activity by the APs.

SLV - courtesy yahoo.com

Investor indifference to the silver rally can also be seen in the low volume trading of the iShares Silver Trust.  We are nowhere close to the high volume seen last May that preceded the rapid correction in silver prices.  The low trading volume in the SLV, despite rising prices, is bullish from a contrary viewpoint since it suggests that many investors are still on the sidelines.  As these sideline investors start buying, prices will continue to advance.

Also supporting future price advances by silver is the relentless physical demand for silver as seen in the record purchase volume of the American Silver Eagle bullion coins.  Sales of the silver bullion coin hit at all time record of almost 35 million coins during 2011. Large demand continues in January with the U.S. Mint reporting sales of over 6 million ounces.  2012 could turn out to be a sterling year for silver.

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

Gold Bullion Coin Sales Soar By 94% In January As Confidence In The Dollar Crumbles

January 31, 2012 by Leave a Comment

According to the latest production figures from the U.S. Mint, January sales of American Gold Eagle bullion coins soared by 93.8% over the previous month.

A total of 127,000 ounces were sold in January compared to 65,500 ounces in December 2011.  The surge in demand for gold bullion coins is now at the highest level since January 2011 when 133,500 ounces were sold.

Investors are taking opportunity of the bargain price of gold which remains below last year’s high.  After hitting a London PM Fix price of $1,895 on September 6, 2011, gold sold off by 19.2% to a closing low of $1,531.00 on December 29, 2011.

Since the beginning of the year, the price of gold has steadily advanced.  The closing London PM Fix price of $1,744.00 on January 31st represents a gain of $213 per ounce for the month, up 13.9% from the 2011 year end price.  The price of silver has also advanced strongly in 2012 with a gain of 26.8% from last year’s low amid record breaking demand for the American Silver Eagle bullion coins.

Sales of the American Gold Eagle bullion coins hit an all time record in 2009 when 1,435,000 ounces were sold.  A summary of annual gold bullion sales since 2000 is shown below.

Total yearly gold bullion coin sales from January 1, 2000 to January 31, 2012 are shown below.

Gold Bullion U.S. Mint Sales By Year
Year Total Ounces Sold
2000 164,500
2001 325,000
2002 315,000
2003 484,500
2004 536,000
2005 449,000
2006 261,000
2007 198,500
2008 860,500
2009 1,435,000
2010 1,220,500
2011 1,000,000
2012 127,000
7,376,500
Note: 2012 total through January 31, 2012

The huge demand during 2009 for gold bullion coins came in the wake of the 2008 financial system meltdown as investors sought a safe haven from paper assets.  Here we are four years later and the financial system is more fragile than ever with insolvent banks  and governments being propped up by central banks that are printing money on a scale previously unimaginable.

Although I have been a precious metals investor for many years (more sometimes than I care to think about), many of the people I deal with on a personal  and professional level seemed to be totally confident holding only paper assets, even after the financial system came very close to a total collapse in 2008.

That confidence now seems  to be slowly but persistently eroding and I am seeing many people enter the precious metals market for the first time.  It is not an “all in” seismic shift but rather a thoughtful and fundamental portfolio reallocation based on the growing realization that paper dollars are being constantly debased.

A one time bout of money printing by the Federal Reserve to “save the system” can perhaps be quickly forgotten, but a persistent and deliberate effort to debase the currency is another matter.  The growing realization that the Federal Reserve is deliberately destroying the integrity of the dollar will be the basis for continual future demand for the only real money left – gold.

The growing movement to reallocate wealth into gold is still in its infancy which implies a future gold value many thousands of dollars higher than today’s price.

Filed Under: Bullion Sales, Featured, Gold, Silver, US Mint Tagged With: , , , , , , , ,

Silver Prices Will Soar To Record Levels In 2012 – “Record Breaking” Demand For Silver Bullion

January 31, 2012 by 1 Comment

Corrections are the norm in any long term bull market and silver is no exception.  The correction that began in May of 2011 and ended in December has set the stage for what will be an explosive move up during 2012 and beyond.

Since hitting the 2011 low of $26.16 on December 29, 2011, silver has climbed steadily, closing on Monday at $33.18, up 17.4% on the year and up 26.8% from last year’s low.  Today’s price should be viewed by long term silver investors as an exceptional opportunity for capital appreciation and wealth preservation.

The underlying fundamentals that will drive silver higher this year include unprecedented demand for both physical silver and silver ETFs, virtually limitless money printing by central banks worldwide to prevent a debt implosion and a growing realization by the public that the Federal Reserve is deliberating and systematically debasing the U.S. currency.

Sales of American Silver Eagle bullion coins by the US Mint may hit an all time record in January.  As of January 30th, the Mint has already sold 6,082,000 bullion coins.  The previous all time record for sales occurred in January 2011 when sales were 6,422,000 ounces.

Last January was atypical in that monthly sales of the Silver Eagles coins tapered off to about 3 million coins per month thereafter and only in September 2011 did sales exceed 4 million coins.  In the three previous years from 2008 to 2010, January sales volume established the baseline of monthly sales for the rest of the year.

For example, in 2009, January sales of the Silver Eagle came in at 1,900,000 coins and average sales for the remaining 11 months averaged 2.44 million coins.  If 2012 follows the pattern of 2008 through 2010, sales of the American Silver Eagle Bullion coins could average 6 million coins per month.  Average silver bullion coins sales of 6 million per month during 2012 would result in a record shattering purchase of 72 million coins, up 80% from last year’s record of 39,868,500 ounces.

American Silver Eagle Bullion Coins
YEAR OUNCES SOLD
2000 9,133,000
2001 8,827,500
2002 10,475,500
2003 9,153,500
2004 9,617,000
2005 8,405,000
2006 10,021,000
2007 9,887,000
2008 19,583,500
2009 28,766,500
2010 34,662,500
2011 39,868,500

The vast majority of holders in the iShares Silver Trust (SLV)  are solidly committed to owning silver and refused to sell positions during the sharp correction of 2011.  When silver hit a high of $48.70 (London PM Fix Price) on April 28th, the iShares Silver Trust held 11,053 tonnes of silver.  After a rapid and sharp correction to $32.50 on May 12th, the SLV silver holdings declined modestly to 10,516 tonnes as short term speculators and over-leveraged investors sold out at the bottom.

On December 29, 2011, as silver hit its low for the year at $26.16, the iShare Silver Trust held 9,605 tonnes.  A correction from the price high on April 28th to the low on December 29th took silver down by 46.3% but holdings of the iShares Silver Trust declined by a very modest 13.1%.  The vast majority of long term silver investors did not sell out during the correction in expectations of sharply higher prices in the future.

Silver - courtesy kitco.com

 

According to Reuters, precious metal dealers are reporting record breaking silver sales and “dollar sales of silver and gold products reached parity in January for the first time in its history – even though bullion costs 50 times more.”  In addition, dealers are selling record number of the Silver Eagle “Monster Boxes” which hold 500 one-ounce coins.

The European Central Bank, which in December lent a massive €489 billion of freshly printed euros to a collapsing banking system may have to provide double that amount (for a total of $1.27 trillion dollars) during the next round of emergency lending scheduled for February.  According to the Financial Times:

European banks are preparing to tap the European Central Bank’s emergency funding scheme for up to twice as much as the ECB supplied in its debut €489bn auction last month, providing further evidence of the sector’s liquidity squeeze.

Several of the eurozone’s biggest banks have told the Financial Times that they could well double or triple their request for funds in the ECB’s three-year money auction on February 29.

The gold to silver ratio, which on a long term historical basis, has been in the range of 16 is now at the bargain ratio of 52, suggesting strongly that silver could outperform gold on a relative value basis.  At a gold to silver ratio of 20, silver would currently be selling at $87 per ounce.

The Sprott Physical Silver Trust (PSLV) just completed a follow on offering of Trust Units in which investors snapped up additional trust units representing about 11 million ounces of silver.

Silver’s rapid price gains during January is a harbinger of what could turn out to be a very good year for silver investors.

Filed Under: Bullion Sales, Featured, Silver, US Debt Crisis, US Mint Tagged With: , , , , , , , , ,

Major Buy Signal For Gold And Why Stock Markets Are Ignoring Predictions Of Economic Collapse

January 26, 2012 by 1 Comment

Predictions that the global economic system will collapse have been coming at an accelerated pace lately.  Usually, many of  the most extreme scenarios are from sources more interested in gaining publicity rather than offering a balanced analysis.

What’s unusual is that lately, many of these apocalyptic predictions are coming from some of the most normally sedate institutions in the world such as the IMF and the World Bank.

Central bankers and the heads of world financial organizations usually speak in oblique and obfuscated terms designed to convey confidence.  Either the financial powers are writing a new book of rules or we are all headed for some unimaginably horrific scenario of financial and social chaos.

Here’s a small sample of the latest warnings from the sedate and not so sedate.

IMF Chief Warns Europe Must Fuel Growth

BERLIN—The head of the International Monetary Fund warned that in addition to cutting yawning budget deficits Europe needs to do more to promote growth and stop the crisis from spreading to the world economy.

“It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand,” IMF Managing Director Christine Lagarde said before the German Council on Foreign Relations. “A moment, ultimately, leading to a downward spiral that could engulf the entire world,” she said.

World Bank Projects Global Slowdown

“Developing countries need to evaluate their vulnerabilities and prepare for further shocks, while there is still time,” said Justin Yifu Lin, the World Bank’s Chief Economist and Senior Vice President for Development Economics.

Developing countries have less fiscal and monetary space for remedial measures than they did in 2008/09. As a result, their ability to respond may be constrained if international finance dries up and global conditions deteriorate sharply.

“An escalation of the crisis would spare no-one. Developed- and developing-country growth rates could fall by as much or more than in 2008/09” said Andrew Burns, Manager of Global Macroeconomics and lead author of the report. “The importance of contingency planning cannot be stressed enough.”

Feliz Zulauf Sees More Trouble Ahead

Felix Zulauf: Yes, I believe the peripheral nations have entered recession territory, and I believe it will get worse.

So, the situation in Europe will get worse before it gets better. Moreover, the ECB, which has its roots in the German Bundesbank, will see to it that the ECB does not become the lender of last resort until they are absolutely forced into it by the market. For investors, this is very important to understand. The new leader Mr. Draghi may leave Trichet’s conservative path, however, as since he is in power he has talked one way and acted in another way. This is delicate as the credibility of the ECB could be lost quickly.

Euro Breakup Would Cause Global Meltdown

In his speech at Davos, Soros will say it is “now more likely than now” that Greece will formally default in 2012, Newsweek said. Soros nevertheless thinks the euro will survive, according to Newsweek.

The world is facing a period of “evil,” Soros said, adding that he foresees Europe descending into chaos and conflict, while rioting in the streets of the U.S. will lead to a curtailment of civil liberties and the global economic system possibly collapsing altogether, Newsweek reported.

All of the risks to global prosperity mentioned above have been well known by investors for months now.  The day the IMF Chief warned of a global depression worse than the 1930’s, the Dow Jones yawned and drop by 10 points.

Is there a major disconnect from reality by U.S. investors or has the worst already been discounted after the steep stock market sell off last August?  Ever since an inside out day on October 3 of last year, the Dow Jones has powered higher, ignoring all the bad news and warnings of Armageddon.  Exactly what is going on?

 

Dow Jones - courtesy yahoo.com

The answer is positive for both stocks and gold.  The “collective wisdom” of the markets saw a resolution to the imminent threat of the European debt crisis last fall, and that resolution is known as quantitative easing.  As previously noted in this blog last December, Every Solution To the Euro Crisis Involve Printing Money, which is exactly what happened.  Both the European Central Bank (ECB) and the Federal Reserve stand ready to print whatever quantity of money is required to paper over the European and U.S. debt crisis.

The massive first phase of the ECB’s Long Term Refinancing Operation advanced about $780 billion to Europe’s insolvent banking system, buying time and postponing the day of reckoning.  The ECB will hold a similar operation in February.

Long term this does little to solve Europe’s fundamental problems, but is short term bullish for stocks and extremely long term bullish for gold and silver.

 

 

Filed Under: Featured, Gold, Gold Stocks, Silver, US Debt Crisis Tagged With: , , , , , , ,

Gold Soars As The Fed Explicitly Promises To Debase The U.S. Dollar

January 26, 2012 by Leave a Comment

Federal Reserve Chairman Bernanke hit the panic button today by announcing a specific inflation target, vowing to keep rates at zero until at least 2014 and pledging to offer additional monetary stimulus. The Fed also noted, as it has in the past, that the economy still faces “significant downside risks”.

These actions by the Fed come nearly four years after the financial crisis began in 2008.  During that time, the Fed has ballooned its balance sheet to almost $3 trillion, driven real interest rates to negative 1.2% and encouraged lending by flooding the banking system with reserves.  The Fed’s monetary easing was supplemented by trillions of dollars in U.S. deficit financed spending  aimed at restoring economic growth and gluing back together the shattered real estate bubble.

Despite these unprecedented and controversial actions, the economy refuses to rebound.  Collapsing home prices, declining real incomes and an “official” unemployment rate of 8.5% are deflationary and this is what has panicked Bernanke more than anything else.  Deflation is the mortal enemy of a credit fueled, debt burdened economy.  Today’s actions by the Fed show that Bernanke will do whatever is necessary to prevent a deflationary collapse.  Of course, the markets already knew this.

GOLD 01/25/2012 17:15 1710.80 1711.80 +44.40 +2.66% 1648.20 1714.00
SILVER 01/25/2012 17:15 33.27 33.37 +1.22 +3.81% 31.46 33.53

The real reason behind the explosive move up in gold and silver was the historic change in Fed policy with the announcement of an explicitly targeted inflation rate of 2%.   Although the Federal Reserve has been debasing the value of the currency ever since its creation, for the first time ever, currency debasement and financial repression has now become an officially stated policy goal.

 

Gold Explodes - courtesy kitco.com

 

The concept of explicit inflation targeting is dangerous and reckless, which is why it has never been done before.  If the Fed decides that we need 2% inflation today, does the rate go higher later?  How will the Fed know exactly when and exactly how to stop creating inflation?  This is the same Fed run by the same Ben Bernanke who could not identify the biggest credit fueled real estate bubble in history.

Will debt-deleveraging overpower the Fed’s ability to create inflation?   Bloomberg’s Michael Kinsley persuasively tells us, Please Remain Worried About Rising Inflation.

About two years ago I wrote an article saying that despite the lack of evidence, and despite the near-universal belief among economists that it was not a problem, I was worried about inflation. My reason was that I couldn’t see how the government could pay off the massive debt it was running up except by inflating at least part of it away.

For this, I was widely ridiculed, and I’d like to take this opportunity to claim vindication. That is, I’d like to — but I can’t. Inflation (CPI) has been creeping up the past couple of years – – from less than 2 percent to more than 3 percent — but that’s still pretty low. Nevertheless, I double down: Barring a miracle, there will be a fierce storm of inflation sometime in the next few years and it will wipe out a big chunk of the national debt, along with the debts of individual citizens, and the savings of others.

One reason I say this is that the arguments on the other side have shifted. It used to be, “It’s not gonna happen — so don’t worry about it.” Now it’s, “You know, a moderate dose of inflation would be no bad thing. So don’t worry about it.” Kenneth Rogoff, an economics professor at Harvard University, is the leading spokesman for this view. He wrote in August that he would like “a sustained burst of moderate inflation, say, 4 percent to 6 percent for several years.” Five years of 5 percent inflation would reduce the value of debts by 27 percent —

It has been four years now, and things are starting to look up a bit. Time to raise taxes or cut spending? Time to stop borrowing? No, not yet (says Krugman). So, when? After eight years? Twelve? Soon you’ll be bumping into the next recession. Or do the annual deficit and the national debt simply not matter? If that’s the case, why do we pay taxes at all?

Although Kinsley cites the example of how “moderate”  inflation of 5% for 5 years would reduce the value of debt by 27%, the obvious corollary would be a decline in the value of the dollar by the same amount.  The U.S. dollar can no longer even pretend to be a store of value, given the new Fed policy of targeted inflation.

The old adage “don’t fight the Fed” is true – and the Fed has just given an all out buy signal on gold.

Filed Under: Featured, Gold, Silver, US Debt Crisis Tagged With: , , , , , ,

Demand For Silver Bullion Coins Hits Record High On Bargain Prices

January 6, 2012 by 2 Comments

Sales of American Silver Eagle bullion coins hit an all time record high during 2011 according to production figures from the U.S. Mint.

Sales of the Silver Eagle bullion coins increased by 13.3% in December to 2,009,000 compared to last year’s sales of 1,772,000.  For all of 2011, total Silver Eagle sales came in at an all time record high of 39,868,500 ounces, up 15.0% from the prior year’s total of 34,662,500 ounces.

In addition to the silver bullion coins, the U.S. Mint also produces proof and uncirculated American Eagle silver coins which can be purchased by the public directly from the U.S. Mint.  Commencing in 2010, the U.S. Mint began producing the America the Beautiful Silver Bullion 5oz coin.  During 2011, the U.S. Mint sold 397,700 of the 5oz coins, which represents almost another 2 million ounces of physical silver demand during 2011.

The U.S. Mint does not sell the American Silver Eagle bullion coins directly to the public.  The bullion coins are purchased from the U.S. Mint by a network of authorized purchasers who in turn resell them to secondary retailers for public sale.

Monthly sales of the Silver Eagle bullion coins during 2011 are shown below.

Silver had a volatile year during 2011, reaching a high of $48.70 in April and then dropping to a low of $32.50 in May after the COMEX repeatedly raised margin requirements on silver futures (see How the COMEX Crashed The Silver Market).  After recovering to $43.49 in August, silver declined to end the year at $28.18, off 8.1% for the year.

Despite the volatility in silver prices during 2011, investor demand for physical silver remained exceptionally strong.  After the significant price pullback from the April high, many analysts and armchair commentators who never owned an ounce of silver in their life were predicting a plunge in demand for silver.  The exact opposite occurred as long term investors took advantage of what is another historic buying opportunity comparable to 2008.

The case for buying silver remains rock solid and patient long term investors have been well rewarded.  As opposed to buyers of paper silver products such as the iShares Silver Trust ETF (SLV), holders of physical silver are invested in precious metals as part of a long term wealth preservation and appreciation strategy.  While speculators in paper silver products trade in and out, usually winding up with losses from my observations, long term holders of physical silver have seen the value of their holdings rise significantly.

Silver - courtesy kitco.com

As central banks of the world continue to print money at an accelerated rate, 2012 should be a year of strong gains for both gold and silver.  A steady plan of silver and gold bullion accumulation remains a no-brainer decision.  Since 2008, sales of silver eagle bullion coins have soared.  Last year, extremely heavy demand for silver resulted in periodic product allocations by the U.S. Mint.

In an excellent article by Steve Angelo, it was shown that massive physical demand for both the American Silver Eagles and Canadian Maple Leaf coins resulted in official coin sales surpassing the total silver production of both the United States and Canada.

Expect demand for silver bullion products during 2012 to surpass the record year of 2011.  Shown below are the yearly sales figures since 2000 for the American Silver Eagle bullion coins.

American Silver Eagle Bullion Coins
YEAR OUNCES SOLD
2000 9,133,000
2001 8,827,500
2002 10,475,500
2003 9,153,500
2004 9,617,000
2005 8,405,000
2006 10,021,000
2007 9,887,000
2008 19,583,500
2009 28,766,500
2010 34,662,500
2011 39,868,500

 

Filed Under: Bullion Sales, Featured, Silver, Statistics, US Mint Tagged With: , , , , , , ,

Gold Demand Soars On Fears Of European Debt Defaults

November 11, 2011 by Leave a Comment

After a sharp September price correction, gold is on track to hit all time highs.  According to a Bloomberg survey, 80% of the forecasters with the most accurate track records are predicting that gold will reach $1,950 by the end of the first quarter.   Investors world wide are fleeing paper currencies as the threat of debt defaults spread across Europe.

Ironically, central bank attempts to stimulate debt burdened economies by lowering interest rates to zero has contributed to the worldwide rush to gold.  Why would investors hold return free government debt with the added risk of principal loss?

As financial turmoil spreads across the globe, gold traders are the most bullish since 2004.

Gold traders and analysts are the most bullish in at least seven years as investors accumulate metal at the fastest pace since August to protect their wealth from a widening European debt crisis.

Gold exceeded $1,800 an ounce for the first time in seven weeks on Nov. 8 and hedge funds are holding their biggest bet on higher prices since mid-September, Commodity Futures Trading Commission data show. The metal is rebounding after tumbling as much as 20 percent in three weeks in September on demand for what are perceived as the safest assets. Almost $9 trillion was wiped off the value of global equities since May and yields on Italian and Greek bonds rose to euro-era records this week.

“Throughout history gold has protected people from the sort of turmoil that we’re seeing,” said Mark O’Byrne, the Dublin-based executive director of GoldCore Ltd., a brokerage that sells everything from quarter-ounce British Sovereigns to 400-ounce bars. It’s “an important thing to own when there is this sort of volatility in stock markets and concern about currency devaluations.”

Gold climbed 24 percent to $1,766.72 this year, heading for an 11th consecutive annual advance. It’s the second-best performer behind gas oil in the Standard & Poor’s GSCI Index of 24 commodities, which rose 5 percent.

Technical indicators suggest the rally that began in September has further to go. While gold jumped 14 percent since reaching an 11-week low Sept. 26, its 14-day relative-strength index is at 58, below the level of 70 that indicates to some who study technical charts that the metal is poised to drop.

 

Gold - courtesy kitco.com

As discussed previously in this blog, proclamations by the mainstream press after the September gold price correction that the “gold bubble had burst” constituted a contrarian buy signal for gold and silver.  The September correction was simply another opportunity for long term gold investors to add to positions at bargain prices.

The fundamental reasons for owning gold and silver have not changed and are not likely to anytime soon.

 

 

Filed Under: Featured, Gold, Silver, US Debt Crisis Tagged With: , , , ,

$40 Silver Predicted By Year End

November 11, 2011 by 2 Comments

Will silver hit $40 by year end?

The latest in depth report on silver from the Silver Institute builds a sound fundamental rationale for a price of $40/ounce or higher by 2011 year end.  The Silver Institute report analyzes the current silver market, sources of investment demand, paper instruments linked to silver, silver mining stocks and privately held silver stocks.

Highlights of the Silver Institute report are summarized below and the full report can be found here.

1.   China and India dominate retail demand for silver but demand from India can be volatile with periods of heavy disinvestment such as occurred in 2009.  The key to silver demand in India remains linked to consumer price expectations and inflation in India has been soaring, reaching almost double digits.

Based on India’s current 9% inflation rate, 2012 is likely to see continued huge demand for both gold and silver.   Paper assets currently have little appeal to Indians seeking to preserve their wealth since interest rates are currently negative.  According to an article published at GATA, the yield on ten year notes is almost 1% below the rate of inflation resulting in an erosion of wealth for holders of paper assets.  Savers are reacting accordingly and purchasing precious metals to preserve their wealth.  During October, imports of gold and silver rose 40% to $7.2 billion.

2.   The Silver Institute forecasts that gold and silver will benefit as a safe haven based on the expanding European sovereign debt crisis which appears to be spiraling out of control.  Silver should also benefit from asset reallocation as recession in Europe causes losses in traditional paper assets.

Amazingly, as both paper currencies and governments continue to collapse, investors still have a blind misguided faith in paper assets back only by the “full faith and credit” of insolvent nations.  Proof of this is seen by the Silver Institute’s forecast of only a 10% increase in retail demand for bullion coin and small bar in Europe.  Demand for precious metals in the U.S. is forecast even lower at 7%.  Such modest demand for the only currency that cannot be debased by government actions completely refutes those who claim that precious metals are in a bubble.

3.  The Silver Institute forecasts that investment demand in 2011 will reach new record highs of $10 billion.  Chinese demand for physical silver should grow by 25% and Indian demand for silver should increase by a massive 55% to 45 million ounces.  The Institute Report also notes that the silver market in China is still very small since the market for silver was only recently liberalized in 2009.

U.S. investors have also taken the opportunity to capitalize on bargain silver prices.   U.S. Mint sales of American Silver Eagle bullion coins should easily hit an all time record high of over 42 million ounces in 2011.

4.   The Silver Institute notes that the rise in silver prices has correlated with the increased price of gold and also benefited from the introduction of ETF products, such as the iShares Silver Trust (SLV).  The iShares Silver Trust has grown to $10.6 billion with holdings of 314.6 million ounces of silver since its launch in 2006.

The correlation of silver to gold prices, as represented by the gold/silver ratio, also suggests that the price of silver is undervalued.   From a long term historical perspective, a gold/silver ratio of 16 has prevailed.   After dropping from 70 to 30 during the first half of the year, the gold/silver ratio has climbed to 52.  If the gold/silver ratio returns to 16, silver prices could easily reach $110 per ounce based on the current price of gold.

The increasingly tenuous “value” of paper currencies combined with increased worldwide demand for silver as a safe haven asset makes a compellingly bullish case for additional investment in silver.

 

 

 

 

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

American Silver Eagle Bullion Sales Soar As Investors Buy At Bargain Prices

October 27, 2011 by 6 Comments

The US Mint’s latest monthly reports on the sale of American Silver Eagle bullion sales show that investor buying has hit all time record levels.

Total sales of the American Silver Eagle bullion coins in 2010 came in at a record high of 34,662,500.

With over two months remaining in 2011, sales of the American Silver Eagle have already surpassed the record level of 2010 with sales of 36,375,500 ounces.  If sales of the Silver Eagle for November and December match the levels of 2010, total sales for 2011 should total over 42 million ounces or more than 20% above the record breaking sales level of 2010.

A review of sales by month for 2011 indicate solid fundamental buying by silver investors.  Typically, buying of an asset will increase as prices go higher and decrease as prices decline.  This was not the case with the American Silver Eagles – despite a sharp sell off in May and September, monthly sales increased as investors took advantage of bargain prices.

Silver had a volatile year, selling at $30.67 per ounce at the beginning of the year and moving up to a high of $48.70 (as measured by the London PM Fix Price) on April 28th.  Silver closed yesterday at $33.47, up $2.80 or 9.1% on the year.

Based on strong fundamental demand for physical silver, expect silver prices to end the year considerably higher.

Filed Under: Bullion Sales, Featured, Silver, US Mint Tagged With: , , , , ,