Gold and Silver Stars
Initially, trade in the Far East was dull with both metals tracking sideways and bouncing around the closing value from the previous NYMEX session. However, as the clock ticked toward Europe’s opening, both commodities began to track down testing support levels.
As it turned out, the release of the American trade balance, worse than expected at -$50bn and following on from the UK’s worse than expected number of -£8bn, was the catalyst for the market bears to take hold and try a shake down. Both gold and silver tumbled in early morning US trade, and perhaps some panic sellers were exposed. But the longer-term investors remained tight, and both metals have risen sharply and strongly from major support levels.
This bounce coincided with the release of the FOMC minutes mid-afternoon. Some members said that if the unemployment rate stayed high and if inflation fell to low levels, “it would be appropriate to provide additional monetary policy accommodation.” This led to expectations of further quantitative easing on its way, a move that would weaken the dollar and strengthen gold and silver. Combine this with continuing fears over the European debt situation, and the flight to the defensive qualities of precious metals has solid foundations.
From its low gold rushed to highs, reaching a little over $1573, and closing at $1567.40 (New York Close).
Silver moved upwards, too. Bears pushed the price through support at just above $35, and hit it hard down to $34.78. From here there has seemed to be no respite for the bears, as silver has spiked above yesterday’s closing levels and continued its march through $36. Although dipping slightly from its high, it posted a gain of 1% to finish the day at $36.12 (New York Close).
The big bullion banks, led by JP Morgan, have taken a short position in the silver futures market, and it is likely that these were the bears playing with the price on the downside today, with futures led selling pushing the physical price lower. If there is a concerted break to the upside, which looks a distinct possibility in the near future, then it will be interesting to watch how these banks play the market. If they are not willing to sell additional contracts, then the silver price could fly.
Overall the risk / reward ratio in silver is attractive right now, and the strategy is still to buy on dips in price in preparation for the upswing.
Cold Hard Metal Better Than Cold Hard Cash
There is a growing sentiment amongst investors that it is better to have money in tangible assets. The question that many are now asking themselves is it better to hold cash in a bank, or gold in your hand? Where is the growth and safety in Euros in a Greek, Irish, or Portugese bank?
Though gold is hitting record highs, it might be worth considering the outlook for silver, traditionally known as the poor man’s gold.
Yesterday, Edel Tully – analyst at UBS AG in London – said that he believes gold will trade above $1600 in the third quarter of this year, and outperform silver and platinum. This is an opinion that is only partially agreed with by others.
Some market observers, such as Eric Sprott of Sprott Inc., believe that silver is in for a bull market that will outstrip gold by perhaps even three times. He firmly believes that silver will, at some time in the not too distant future, trade at a ratio of 16:1 to gold. In other words, if gold hits $1600 an ounce – predicted by many to happen by the end of this year, and, quite frankly, looking like an under estimate – then silver will trade at around $100 an ounce. Sprott doesn’t go as far as saying that this will turn out to be true this year, but is certain that this ratio will come to fruition within the next three to five years.
If such observers are right, then not only is silver a great defensive play but also a very strong investment.
US Mint Releases Latest Sales Numbers
Yesterday the US Mint released more news that confirms the appetite amongst investors for silver. Month to date they have sold 14,500 ounces of gold eagles and 2,500 ounces of gold buffaloes. Compare this with a total of 1,113,500 silver eagles. At a ratio of 65:1, this is an unprecedented amount of silver being sold by the Mint. Converted to dollar terms, this equates to $2470 worth of silver for every $1450 worth of gold sold. Perhaps the most interesting point to note is how easily the market is absorbing these sales.
