December 2, 2022

Gold Hits All Time High and Silver Breaks $40 as Precious Metal Demand Soars

Anything but paper dollars was the theme this week as investors rushed into anything of tangible value.  Gold, silver, oil and commodities of all types have been skyrocketing since last August when the Federal Reserve announced its second round of quantitative easing.

Gold closed at an all time high of $1,469.50 as measured by the London PM Fix Price and silver hit a 31 year high closing the week at $40.22.  Some analysts cautioned that the rapid rise in gold and silver prices could lead to a pullback, but overbought markets tend to defy such logic.  Gold has decisively broken through resistance at the $1,450 level and silver looks ready to challenge the all time high of $48.70 reached in 1980.

Precious Metals Prices
Fri PM Fix Since Last Recap
Gold $1,469.50 +51.50 (+3.63%)
Silver $40.22 +2.59 (+6.88%)
Platinum $1,803.00 +30.00 (+1.69%)
Palladium $798.00 +26.00 (+3.37%)

The surge in precious metals prices reflects the obvious conclusion that developed nations of the world are on a trajectory with a potentially devastating debt crisis.  The budget antics in Washington make it clear to any impartial observer that spending will not be cut and the parabolic growth of debt will continue.  No one knows how the looming debt crisis will ultimately play out for the Nation, but one certain outcome is that the dollar’s purchasing power is likely to diminish greatly (see Ron Paul Talks About Horrendous Currency Debasement).

Gold rose by $51.50 on the week and is up over $300 per ounce over the past year.

GOLD - COURTESY STOCKCHARTS.COM

Silver has been the standout performer over the past year, increasing by over 122% since last August.  This week was no exception with silver sprinting past the $40 mark and gaining 6.9% on the week. Despite the large increase in the price of one ounce of silver, the Silver Institute reports that both investment and fabrication demand soared last year.  During 2010, world investment demand for silver increased by 40% and fabrication demand (which accounts for 83% of total silver demand) rose by 13%.

Platinum and palladium also rose on the week, recouping the price correction experienced after the Japanese earthquake.  Platinum rose by $30 on the week to $1,803 while palladium rose by $26 to $798.

Ron Paul Links Bullion Coin Shortage To Horrendous Currency Debasement

Rep. Ron Paul, during a Subcommittee hearing on problems at the US Mint, linked the shortage of gold and silver coins to the “huge debasement” of the United States currency.

The remarks came during a hearing by the House Financial Services Subcommittee on Domestic Monetary Policy, entitled “Bullion Coin Programs of the United States Mint: Can They Be Improved?”  Four different coin and previous metals industry experts provided testimony on how to address ongoing problems with coin production and shortages.

After some lengthy discussion by witnesses and committee members regarding shortages of silver coin blanks and marketing and production problems at the US Mint, Rep. Paul focused on what he considered to be the primary reason why the US Mint was, at times, unable to meet public demand for gold and silver coins.

Listed below are highlights of Rep. Paul’s remarks at the Subcommittee hearing.

  1. It is “imperative” that the US Mint should be able to produce an adequate supply of coins to the U.S. public.  According to Rep. Paul, investors are rushing to purchase gold and silver due to quantitative easing by the Federal Reserve.
  2. The US Mint should take the appropriate steps to source enough planchets to meet public demand for gold and silver coins.  People are worried, stated Rep. Paul, and are trying to preserve their wealth through the purchase of gold and silver due to government policies that will lead to inflation and debasement of the currency.  Rep. Paul stated that “If we had a sound currency” there would not be a shortage of gold and silver coins since demand by the public would be a non event.
  3. Rep. Paul detailed the “horrendous huge debasement” that has occurred with the US currency.  In the early 1930’s, when gold was on a fixed exchange rate with the US dollar, the dollar was worth 1/20 ounce of gold.  It was subsequently devalued to 1/35 ounce of gold during the 1940’s, to 1/38 ounce of gold in the early 1970’s and to 1/42 in 1973.  Once it became legal for US citizens to own gold and the dollar was based on market prices, the value of one dollar subsequently dropped to 1/1450 ounce of gold.
  4. Rep. Paul noted that total annual demand during 2011 for Silver Eagle bullion coins should reach 48 million ounces, but that total US silver production would amount to only 40 million ounces.  The US Mint should take all necessary steps to ensure that adequate supplies of silver are available to meet public demand for silver coins.

Although not specifically addressed, the issue of whether the US government is making an effort to limit the sale of gold and silver coin to the public remains an open question.  By law, the US Mint is required to produce coins “in quantities and qualities that the Secretary determines are sufficient to meet public demand”.  There were no US Mint representatives present at the Subcommittee hearing to explain why the US Mint is unable to comply with production mandates specified by law.

Silver Price Above $40 and Gold Hits New All Time High in Overseas Trading

Gold soared to new all time highs in Asian markets and silver pierced the $40 per ounce level as new demand continues to drive precious metal prices higher.

The world spot price of gold hit an all time high of $1,470.80 up $12.40 and silver pierced the psychological $40 level, reaching $40.23 per ounce.  Platinum and palladium were also both up over 1% to $1,808 and $794, respectively.

Precious metal buyers had numerous reasons to be bullish including skyrocketing oil and food prices, the worsening situation with the European debt crisis, continuing conflicts in major oil producing countries and the ugly specter of a government shutdown in the U.S. due to the inability of Congress to come to grips with an exploding deficit and looming debt crisis (see Budget Fiasco Sends Wrong Message To U.S. Creditors).

Gold has now risen by over $31 per ounce this week and by $50 since March 28, breaking through resistance at the $1,450 level. Investors are seeking to protect their wealth from inflation and the continuing debasement of paper currencies as nation after nation continues to run huge deficits in an attempt to revive weak economies.  A glimpse of the end game to massive government deficits and liabilities is currently on display in Washington and the message is a resounding endorsement for diversifying out of paper money.  Politicians will not cut spending for a large variety of reasons, calling into question the future solvency of numerous sovereigns worldwide.

Silver has now advanced a spectacular $9.33 or 30% since the beginning of the year and shows no sign of slowing down.  According to the Silver Institute, world investment demand for silver skyrocketed by 40% during 2010 and was the primary reason for the huge 78% increase in silver prices last year.  Total fabrication demand, which accounted for 83% of silver demand last year,  increased by almost 13% despite the large rise in silver prices.

The looming global debt crisis and the printing of money has lead to surging investor demand for real assets.  Since late last summer when the Federal Reserve initiated its latest money printing campaign, the price of raw material prices as represented by the S&P GSCI Spot Index has soared by 35%.

Gold and Silver Prices Soar As Budget Fiasco Sends Wrong Message To U.S. Creditors

Gold and silver prices rose to new highs today on continuing concerns over a weak U.S. dollar, the European debt crisis, growing conflicts in the MidEast and escalating doubts over the ability of the United States to avoid a debt crisis.  The ongoing budget charade in Washington makes it perfectly clear that neither political party has the desire or ability to seriously address the exploding level of U.S. debt.

Gold hit a new all time high of $1463.70 and silver reached a 31 year high at $39.79.  Prices of both metals eased in early afternoon trading with the New York Spot Price for gold at $1456.70 and silver down fractionally at $39.33.  The limit on future increases in precious metals prices has effectively been removed due to the absolute inability of Congress to address the looming debt crisis.

GOLD - COURTESY STOCKCHARTS.COM

With the United States facing a $1.5 trillion dollar deficit on a projected budget of $3.6 trillion, politicians are threatening to shut down the Government over their inability to agree on whether spending should be cut by $40 or $60 billion.  Does anyone really believe that Congress is capable of coming to terms with the reality of an exploding deficit and spiraling national debt when agreement cannot be reached on $20 billion – a mere one half of one percent of total government spending?

The surge in gold prices reflects the realization that the nation is on the fast track to higher interest rates, a spiraling increase in the cost of living and a continued debasement of the U.S. dollar (see Why There Is No Upside Limit To Gold and Silver Prices).

Meanwhile, as the threat of a Government shutdown looms, Treasury Secretary Geithner warned of dire consequences if the U.S. is not allowed to borrow more money by raising the debt ceiling above its current limit of $14.3 trillion.  At a meeting with a Senate Appropriations subcommittee Secretary Geithner forecast that a U.S. default would lead to much higher interest rates, the failure of hundreds of thousands of businesses, payment cuts to senior citizens and a financial crisis worse than that of 2008 – 2009.

Geithner’s prediction of Armageddon, unfortunately, comes with no prescription on how to reign in out of control Government financial policies which are the fundamental threat to the country’s economic future.  It’s not just this year’s or last year’s multi trillion dollar deficits that are the root of concern, but rather the massive long term structural deficits that are now built into Government spending budgets.

The debt limit will eventually be raised and both political parties will claim victory.  America’s creditors will ponder the increasing risk of U.S. Treasury debt and ultimately conclude that the U.S. has no will to fix a financial system on the brink of insolvency.  The ultimate day of financial Armageddon, alluded to by Secretary Geithner, will not be forestalled by our unworkable political process.  The final reckoning and hard choices will be made only when forced upon us by markets that refuse to finance additional U.S. borrowing.

Gold and Silver Consolidate Recent Gains As Threat Of Sovereign Defaults Grows

Gold and silver prices, as measured by the London PM Fix Price, were largely unchanged on the week.  Gold slipped by $18 per ounce while silver declined modestly by $.05

Gold has rallied almost $100 per ounce since late January but has failed to decisively break out to new all time highs.  Silver, the standout performer in the precious metals sector has rallied furiously since late January, gaining $10 per ounce for an increase of 36%.

SILVER - COURTESY KITCOSILVER.COM

Despite the current attempt by Congress to implement very modest budget reductions,  fewer and fewer people seem to have faith in the long term value of the dollar.  The value of gold has not gone up for 10 years straight by accident – it is the result massive increases in debt and the looming threat of paper currency depreciation as governments resort to the printing presses to avoid defaulting.  (See Why There Is No Upside Limit for Gold and Silver).  Recent comments by two prominent individuals reinforce the view that the potential fallout from the debt crisis will be severe.

Bill Gross of Pimco, the world’s largest bond investor, writes in his April 2011 Investment Outlook,  “Unless entitlements are substantially reformed, I am confident that this country will default on its debt; not in conventional ways, but by picking the pocket of savers via a combination of less observable, yet historically verifiable policies – inflation, currency devaluation and low to negative real interest rates”.

John Lipsky of the International Monetary Fund warned that the level of debt by developed nations is unsustainable, having reached levels last witnessed after the end of World War II.  According to Mr. Lipsky, “The fiscal fallout of the recent crisis must be addressed before it begins to impede the recovery and create new risks.  The central challenge is to avert a potential future fiscal crisis, while at the same time creating jobs and supporting social cohesion”.

The reality of a democracy is that we elect those who promise to provide us with the most benefits and entitlements.  Under these constraints, the temptation by elected officials to use printed money to meet promises that cannot be kept is irresistible.  Yes, the promises will be kept but they will be paid for in dollars that have little purchasing value.

Precious Metals Prices
Fri PM Fix Since Last Recap
Gold $1,418.00 -18.00 (-1.25%)
Silver $37.63 -0.05 (-0.13%)
Platinum $1,773.00 +21.00 (+1.20%)
Palladium $772.00 +18.00 (+2.39%)

Platinum and palladium both gained on the week, continuing a rebound from recent sell off lows reached during the height of the panic related to the Japanese earthquake.  Since mid March, platinum has gained $73 per ounce while palladium has gained $60 per ounce.  In late February palladium was at the $860 level while platinum traded in the $1850 range.

Why There Is No Upside Limit for Gold and Silver Prices

The past decade has seen a virtually nonstop advance in the price of gold.  Silver, which lagged gold until last year,  recently hit a 31 year price high.  Gold and silver, both used as currency for thousands of years, have gained broad investor appeal as a hedge against paper currencies.

The increase in the value of gold and silver is due to the fiscal and monetary policies of nations struggling to deal with massive levels of debt – policies that virtually guarantee a continued rise in the price of gold and silver.

Central banks, having exhausted all conventional means of monetary easing, have moved on to the last resort option of quantitative easing and currency debasement.  Federal Reserve Chairman Bernanke has twice resorted to the printing presses, and then shamelessly explained the “virtues” of his money printing policy (in convoluted terms) to a gullible public on national television.  The subsequent absence of broad public opposition to a policy that is certain to ultimately destroy the financial well being of most Americans seems based on ignorance and/or indifference.

One American who is not ignorant or indifferent to the Fed’s policy of printing money issued a dire warning this week on the dangerous path the Federal Reserve has taken.  The reason we should all pay great attention to this warning is because it was issued by a powerful policy maker at the Federal Reserve.

According to Reuters, Richard Fisher, President of the Dallas Federal Reserve stated in a speech that the debt situation in the U.S. is at a “tipping point.” He is quoted as saying, “If we continue down on the path on which the fiscal authorities put us, we will become insolvent.  The question is when”.   Bank President Fisher further said that no additional extraordinary measures should be taken when the current round of money printing ends in June of this year.

We shall see what happens comes mid year when QE2 is scheduled to end.  The problem facing the Fed is that they are out of conventional policy bullets to ease credit conditions with rates already at zero.  The ease and apparent lack of consequences in printing money has made additional quantitative easing a very seductive method of  allowing huge deficit spending by the government.  QE2 is a thinly disguised monetization of the Federal deficit in which the Federal Reserve purchases government debt from the primary dealers after they purchase the debt at Treasury auctions.

Government officials argue that unprecedented deficit spending and quantitative easing are necessary to stimulate economic  growth, but this theory has not worked in the real world.  Despite trillions in stimulus spending,  job creation and economic growth have been extremely weak and are likely to remain so according to economists Kenneth Rogoff and Carmen Reinhart who wrote This Time Is Different: Eight Centuries of Financial Folly.  According to Rogoff and Reinhart, economic growth is subpar when public sector debt exceeds 90% of GPD which the U.S. and many other developed nations have already surpassed.  In addition, a recovery of the job and housing markets after a financial crisis take many years due to the burden of excessive levels of debt.  Ultimately, Rogoff and Reinhart predict that austerity measures will need to be imposed along with some type of debt restructuring.

Is the U.S. capable of reducing spending and  instituting austerity measures? Cutting deficits means cutting payments to a long list of incomeless recipients who really don’t care where the entitlement money comes from.  Those still actually paying taxes will object strongly to any proposed tax increase to fund government spending.  Unable to cut spending or raise taxes leaves the Government with one bad option – print more money.

Politicians, who value getting elected above all else, are likely to strong arm the reliably compliant Federal Reserve Chairman Ben Bernanke to “come to the rescue” again with QE3.   In the minds of politicians and Federal Reserve officials, there will always be very compelling reasons to continue borrowing and money printing.  With the expected retirement of Federal Reserve Bank of Kansas President Thomas Hoenig this October, the Federal Reserve will be dominated by dovish members who favor the easy money policies of Fed Chairman Bernanke.  President Hoenig is one of the few Fed members who oppose continued zero interest rates and quantitative easing.

The correlation between parabolic increases in government debt and the price of gold is clear.   Since 2000 both government borrowing and the price of gold have been closely correlated as seen below.  The increased value of gold directly reflects the decreasing value of paper money.

A nation that has reached the limits on taxation and borrowing has few viable policy options other than a continuing series of quantitative easing programs.  Current government policies, if left unchanged, virtually guarantee a continued increase in the price of precious metals.

TOTAL PUBLIC DEBT

GOLD PRICE - COURTESY KITCO.COM

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 Price Hits All Time High, Silver At 31 Year High

The price of gold hit an all time highs for the second day in a row, while silver prices moved up to a new 31 year high.

As measured by the closing London P.M. Fix Price, gold reached an all time high of  $1,447.00 up from yesterday’s all time high of $1,439.50.  The previous record London Fix Price was $1,437.50 on March 7th.   The all time record high intraday price of gold was also reached on March 7th at $1,444.95.  Earlier in the day, Comex gold futures had hit an all time high of $1,448.60 before a pull back erased the day’s gains.  In late afternoon trading the bid on New York spot gold was $1,431.30.

Silver futures scored another new 31 year high at $38.18 before sliding to $37.45 in New York spot trading.   The closing London P.M. Fix Price for silver was $37.78.

GOLD - COURTESY STOCKCHARTS.COM

In 2010, the price of gold advanced by 30% as investors grew increasing nervous about the value of paper currencies and the increasing threat of inflation.  The U.S. Federal Reserve policy of printing money to fund government deficits sets a horrendous precedence and it appears that other central banks will soon be conducting their own versions of quantitative easing.

The European Central Bank is struggling to prevent numerous sovereign defaults in an effort to preserve the European Union and monetization of the debt seems to be the only feasible “solution”.   Japan, the most heavily indebted developed nation in the world, needs hundreds of billions of dollars for reconstruction after a devastating earthquake and the printing press seems to be their only option.

Reflecting on the fiscal and monetary policies being conducted by the U.S. Government, Warren Buffet stated that “We’re following policies that will lead to a lot of inflation down the road unless changes are made.  The U.S. can’t run the kind of deficits we’re running and other policies without it being enormously inflationary”.

Unfortunately, intelligent changes are not being made and the ruinous policies of central banks seems likely to continue at an accelerated rate.  Gold has broken out to new highs and should see significant price gains in 2011.

iShares Silver Trust Hits New All Time High

During Wednesday trading, the iShares Silver Trust (SLV) reached an all time high price.  At the time of this post, shares were trading up 78 cents to $36.32, which exceeds the previous high of $35.27 reached in early March.

The SLV saw a month long correction in January with the price declining from $30 to $26, which brought the SLV below its 50 day moving average.  The losses on the brief pullback in January were quickly regained and the SLV powered on to new highs by mid February.  The SLV has now jumped more than $10 from its January low, for a gain of over 38% in less than two months.

SLV - COURTESY STOCKCHARTS.COM

Ownership of the SLV gives an investor an undivided, fractional ownership in the physical silver held by the iShares Silver Trust.  The price of the SLV is structured to reflect the underlying price movement in silver.  The gain or loss on the SLV should very closely track the price of one ounce of silver. Over 97% of the Trust’s net asset value is based on physical silver held by the Trust.

The Silver Trust currently holds over 352 million ounces of silver worth $12.7 billion.   Assets of the SLV have grown steadily since the inception of the Trust in April 2006.  The SLV has become extremely popular with investors seeking to establish a position in silver without the costs and risks of taking physical possession of the metal.  Due to the manner in which the Trust is structured, premiums and discounts to the net asset value during the trading day are typically less than 1%.

Investors have seen huge returns on their investment in the iShares Silver Trust.   Last year the SLV rose 79.4%.  Year to date the SLV is up 18.6%.  Since inception of the Silver Trust in April 2006, the net asset value of the SLV has almost tripled from its initial price of  $12.55.   A $5,000 investment in the SLV in April of 2006 is now valued at $14,455.

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