Physical silver hits a record 30% premium over spot

Will silver prices be boosted by Investments in China?

Precious metals have seen a resurgence in recent years as investors search for ways to secure their wealth. Investments that are heavily reliant on the dollar are riskier than ever. Precious metals such as silver, on the other hand, provide hedges against economic uncertainty. For this reason,  Silver  has become a mainstream investment vehicle.

Countries such as China are purchasing silver in record quantities. China is encouraging its citizens to do the same in order to secure the country’s financial holdings and to become less reliant on weakening paper currencies. As a result, the price of silver is expected to continue its upward trend.

While silver has traditionally been overshadowed by gold, it does have the advantage of being an industrial metal as well as an investment metal. Stephen Leeb, chairman and chief investment officer of Leeb Capital Management, said, “There’s no industrial use for gold. It’s become ever-more recognized as a possible reserve currency. Silver does have industrial uses. It’s industrial vs. nonindustrial. They’re totally different classes. But silver overlaps. In a diagram, you would have silver in both sets: the industrial set as well as the monetary set.”

China’s central bank has purchased silver aggressively in recent years and has also created tremendous industrial demand on the precious metal. The solar industry is fueling demand for silver, and China is currently spending $1 trillion every year on alternative forms of energy including solar.

While other countries are scrambling to get out of debt, China is gaining strength. In order to secure that wealth, its citizens are purchasing  Silver  bullion bars, coins and jewelry. With 50 percent of the market share on the solar industry and a significant role in many other industries that create a high silver demand, China has added to silver’s strength as a monetary metal and to the rising price of silver.

Leeb believes that China will continue its silver buying trend. He said, “China will start buying silver much more aggressively and start accumulating it. There’s very little doubt in my mind that China will be accumulating massive amounts of silver.”

At the same time, central banks in such countries as Russia and Mexico have also created further demand on silver. The high demand for the metal among individual investors has cause the price of silver to continue its upward trajectory. Investors interested in adding the precious metal to their financial portfolios can choose from bullion bars and coins, or indirect investment vehicles such as exchange-traded products or silver certificates.



Source:  PreciousMetalsPrice 

Gold and silver: When and why to buy

By Barry Taylor
In times of economic and political uncertainty traders are often advised to invest in  Gold  and  Silver  - the Precious Metals. But is this the right thing to do? Historically, investing in gold, silver or  Platinum  was seen as a sure-fire way of protecting your wealth against the fluctuations in the economy during periods of political unrest or economic down turn. Gold still holds a special place in people's hearts as a means of 'storing' wealth during an economic crisis. 

However a closer look at the markets shows that buying gold during a financial crisis is not in fact the best option for people looking for a return on their investment. Indeed the smart investor only needs to take a look at the relationship between the gold and silver markets and the US dollar to spot the problem. Over the past 35 years there has been an inverse relationship between the value of the US dollar and these precious metals. Put simply, the price of gold rises when the US dollar falls.

The price of gold rises during political unrest as people flood the market wanting to protect their assets, but it falls when a financial crisis actually hits and the smart money heads for the safety of US Government bonds and hence buying the US dollar. Therefore gold is not the safe haven it is thought to be during a financial crisis. In fact comparisons of the S& P500 index and the gold market has shown that while the price of gold may rise in times of economic and political instability, driven by people opting for the 'safe' option, so too can the S& P500 index.

For example in 1979 gold rose from $1,042 at the beginning of the year to $1646 by January 1980. During the same time the S& P500 index rose from 97 to 117. This was during a period when we had the Iranian revolution, the US embassy hostage drama in Tehran, the Soviet invasion of Afghanistan, a second oil crisis and subsequent high inflation, and political turmoil in the UK. When the stock market dropped by 19% at the beginning of 1980, so too did gold - falling 30% during that year. So investing inGold  during times of political uncertainty is no better or worse than investing in the S& P500 index.

During the 1990s, in the wave of the technology boom, people invested in US companies rather than the gold market. This increased the value of the US dollar but had a negative impact on the price of gold. Then, when the technology markets crashed, and the US Federal Reserve lowered interest rates to zero, the price of gold started to rise. It continued to rise as the US dollar was further devalued when the US government started deficit spending and waging a series of expensive wars. In fact the largest trends in the gold and  Silver  markets have been a decline since 1980 (when the economy was booming) until 2001, followed by a continuous rally as the Government has struggled to reduce its deficit and curb its spending.

Another consideration when dealing in the Precious Metals market is that although the prices of gold, silver and  Platinum  are usually strongly correlated and move together, occasionally gaps appear. For example platinum had a huge rally in 2008 and silver fell behind gold in 2010. Despite these fluctuations the markets will usually stabilize and synchronize eventually.


The best way to make the most of your investment capital is to buy gold (or silver) when there is intense political and economic uncertainty. But as soon as the financial crisis actually hits, move out of gold and into the US dollar. Remember to always keep your trading capital to the strongest possible currency. It is worth tracking all the major currencies, including the Euro, the Australian Dollar, British Pound, Swiss Franc, Singapore Dollar and Canadian dollar, so you pick the strongest currency for your base trading capital. Whether you are trading gold and silver or not, tracking the weekly commitment of traders data will give you an overall picture of the strength of the US dollar and therefore the best opportunities for investment during a financial crisis. 

'Reasons why silver to hit $50 in April 2012'

By Ted Butler
I believe the  short squeeze that took  Silver  to $49.73 in April has taught the commercials how tight the physical silver market  actually is, and that the commercials " appear to have no interest in massively shorting silver again" . As a result, I look for  silver to make massive gains in the near futures, as the commercials turn and go net long, resulting in $50 silver appearing " cheap" in the near future.

The  big commercial silver shorts had a near death experience when the price approached $50 in April. They were at the end of their rope and needed to do something in a hurry.  That’s why they rigged prices lower so that they could buy and save themselves. These well-connected commercials knew, perhaps for the very first time, just how tight the silver market had become and how close we were to a profound physical shortage. The key is that the silver shortage wasn’t caused by excessive speculative buying or a bubble or a mania. The extreme tightness and near shortage in silver was as a result of the gradual and cumulative impact of normal investment buying over the past five years. There is nothing to suggest that the long term and steady silver investment buying has ended.

Because there was  no bubble or mania in silver, there was no bubble to burst. The orchestrated take-downs of the price by the big commercial interests were simply so that these commercials could buy and rid themselves of  Silver  short positions. That’s done now. That means that the  silver market is now in the best possible shape.

What lies ahead for silver is exciting. While we have not witnessed a bubble in silver yet, we will some day. The silver story and the dynamics of the market are too compelling for an investment mania not to emerge at some point. If anything, speculative sentiment has been completely wrung out from silver, clearing the way for speculators and investors to enter the market with a vengeance.

At some point, enough of the  world’s industrial silver users will panic as prices climb and attempt to build physical silver inventories. This user buying, something that never kicked in during the run to$50 will create a silver shortage, the likes of which never witnessed before. It seems that the big commercial interests have come to learn the real silver story and they appear to want no part of the short side again. The major pressure of selling has passed...and the way seems clear for higher prices. By the time the next chapter in the silver story plays out, $50 could look cheap.


Source:  Butler Research 

'Dollar could hinder gold, but fundamentals still bullish'

LONDON (Commodity Online):  Deutsche Bank said it still views gold’s underlying fundamentals as bullish and it anticipates a stronger U.S. dollar over the next few months will hinder advances for the yellow metal.

“The persistence of negative real interest rates will sustain the appeal of holding gold. We also expect central-bank  Goldbuying will continue and that tail-event risk as it relates to the European sovereign-debt crisis and the ECB’s balance sheet will encourage  Gold  prices to recover,” bank added

From a valuation standpoint, the bank said, gold would need to surpass $2,100 an ounce to be considered excessive and for the market to start to display bubble characteristics.


Deutsche Bank forecasts gold at $1,600 in the first quarter, $1,800 in the second, $2,000 in the third and $1,900 for the fourth. Analysts forecast  Silver  at $30 for the first quarter, $34 for the second, $44 for the third and $40 for the fourth. 

'Silver ensures bullish outlook among precious metals'

The new year started off with a bang with precious metals out-shining the competition. Is this a harbinger of things to come? We think so and we are not alone. Forecasts for  Goldfor 2012 include a price per ounce of $2,200 by Morgan Stanley, $2,050 by UBS, and $2,000 by Barclays.

The year 2011, for other than gold investors, has been a disappointment, more like a train wreck. Growth has been paltry, unemployment remained high, sovereign debt in the stratosphere. The U.S. political system has been dysfunctional unable to make easy decisions, never mind the hard ones. There was no housing rebound and the eurozone looked like it was a house of cards. But look on the bright side. Despite a prophecy by Harold Camping, the world did not end on May 21.

There was also some other good news. There was no double dip in 2011. Osama bin Laden was " laid to rest in a solemn ceremony concluding upon impact with the Indian Ocean at a terminal velocity of 125 miles per hour," (at least that's the official version) in the words of Dave Barry, humor columnist for The Miami Herald. Moammar Gadhafi and other dictators also suffered major setbacks (to put it mildly.)

There are some issues hanging over the economy in 2012 that will determine if the upcoming year will also be a disappointment.

In 2011, American politics was silly undermining confidence in ways that damaged economic prospects. There was the April battle over spending that nearly shut down the government and would have had a devastating effect on the ability of Congress to continue spending insanely more money than it actually has. The December standoff was over whether to continue a cut in the payroll tax that both parties agreed to in principle. But most damaging was the summer brinkmanship when many House Republicans threatened to block an increase in the debt ceiling -- which would have meant a default on U.S. debt -- unless they got their way on major spending cuts. The sides hammered out an agreement under which the government will continue to spend tons more money than it has while a super committee will devise a plan to solve this problem once and for all. This committee fell short of its goals. Perhaps in 2012 we will see " a Super Duper Committee." Even after a deal was struck, Standard & Poor's cut the U.S. government's credit rating, blaming the downgrade on the reduced " effectiveness, stability and predictability" of American policymaking.

Stay tuned. This year's election is going to be a cliffhanger. Obama has going for him the lackluster Republican lineup. He may actually win. But with a razor thin mandate and a Republican-controlled Congress, Obama in his second term will not have much room to maneuver. With the economy in such a fragile condition, it would be best, whatever the outcome of the November election, that the result be decisive and unifying. Meanwhile, a move toward a libertarian approach sill appears unlikely.

To see what is likely to happen in the precious metals market in the nearest future, let's begin the technical part with the analysis of silver.

Barclays 2012 predictions: Silver $32.5/oz, Gold $1875/oz

NEW YORK (Commodity Online):  Barclays Capital has released its 2012 price forecasts for  Gold  and Silver. The investment bank expects gold to hit a high of $2200/oz whileSilver  is expected to hit $45/oz in 2012

Gold average: $1875/oz
High: $2200/oz
Low: $1400/oz

After being propelled to new highs, gold has had to battle softer physical demand, the relative strength of the dollar, technical selling and muted risk appetite. While the need for liquidity, dollar strength and risk reduction present near-term hurdles, our three pivotal watch factors remain intact.

First, central bank buying continues and with new interest emerging second, uncertainty continues to surround the financial markets and sovereign debt and finally, growth in investment demand is occurring despite price corrections.

Longer term, gold still possesses structural pillars of support in an environment of negative real interest rates and rising inflationary pressures, as well as continued central bank buying, and we expect it to hit new highs, breaching the $2000/oz mark.

For the gold rally to be derailed, physical demand would need to stop responding to price dips, and " sticky" ETP holdings would tumble as alternative assets become more attractive and significant producing hedging becomes likely.

Silver average: $32.5/oz
High: $45/oz
Low: $22/oz

Silver displayed its breadth of volatility in 2011, tumbling from the strongest performing precious metal in H1 11 to close the year as the weakest.  Silver  also reaffirmed its dependence on investment demand to plug its fundamental gap.

Given that silver mine supply continues to grow unhindered to surpass previous records, the market remains reliant on its two-pronged drivers.  Growing investor demand, coupled with healthy industrial consumption, catapulted silver prices to 31-year highs, but industrial demand now looks vulnerable while investor appetite has recoiled.

ETP holdings fell almost 1000 tonnes in 2011, while speculative positions are at their lowest since April 2003. In turn, investor positioning in silver is much cleaner, allowing physical demand to set the floor for prices.

Silver is likely to remain the most volatile precious metal and take its cue from  Gold  prices hitting new highs to outperform its sister metal.


Source:  Barclays Capital Commodities Research report

 

 

 

Why is gold suddenly so tied? Will it bounce back in 2012?

In this exclusive interview  Joe Foster,  Gold  analyst,discuss his views about gold market in general as well as the gold-mining sector. Foster has been in the mining and investment businesses for more than 25 years and is frequently quoted in the Wall Street Journal and Barron’s. He currently serves as the  Lead  investment team member for several of Van Eck’s gold exchange-traded funds, including the company’s Market Vectors ETF Trust – Gold Miners ETF (GDX) and Junior Gold Miners ETF (GDXJ).

Hard Assets Investor:  Do you think gold will see its 12th-straight year of positive gains in 2012?

Joe Foster:  I continue to think that we’re somewhere in the middle of the bull market. We’re nowhere near the end. And having that outlook, I think we’ll trend higher in 2012.

HAI:  Do you anticipate that central banks will continue to be net buyers of gold in 2012?

Foster:  In 2011, central banks bought almost 500 tons of gold − at least that’s what the estimates are saying − which is a tremendous amount of gold. And central banks are buying gold for the same reason that we are, for the same reason we’re investing in gold-mining stocks. They see a tremendous amount of uncertainty. They see countries that debase their currencies. They see the debt problems we’ve been reading about in the papers. Central banks are looking for something that’s going to hold its value. The motivation for buying gold will continue to be there into the foreseeable future, so we expect another heavy year of central bank buying.

HAI:  Why is  Gold  suddenly so tied to the hip of the euro?

Foster:  The trading pattern for gold over the past several months has been a little bit unusual compared to what we’ve seen in earlier phases of the cycle.

Despite all the turmoil in Europe, gold has had a high correlation with the euro. It’s not acting as a safe haven as it had earlier in 2011. It’s had a split personality lately. Some days it will trade as a safe haven some days it will trade as a risk asset. The market can’t quite make up its mind how it wants to trade gold at the moment. I think that’s just sort of a phase that it seems to be going through.

The safe havens recently have been the U.S. dollar and U.S. Treasurys. So when the euro has been weak, gold has been selling off as well.

HAI:  What would you suggest gold investors keep an eye on?

Foster:  Just stay focused on the longer-term fundamentals, the longer-term macro outlook. You can’t characterize gold as a risk asset, or characterize it as a commodity. It’s a unique investment vehicle. You have to stay focused on the long-term fundamentals, and everything else is just noise. We’re within a positive trend. And what we saw in December, to me, is just noise.


It’s a thin market. It’s an environment in which the short players can have their way. But it’s temporary.

HAI:  We saw  Gold  miners paying dividends in 2011, something like more than $2 billion in total. What’s the outlook for dividends in 2012?

Foster:  They have the capacity to increase dividends. I think we will see a continued increase in dividend payout amongst the gold producers.

HAI:  Will that trend be more likely with bigger miners? Are you seeing junior gold minors also paying dividends in the same fashion?

Foster:  It’s more amongst the larger companies. The larger companies have a portfolio of mining operations.

HAI:  Let’s talking a little bit about Van Eck’s gold mining ETFs. Why the disparity of performance between majors and juniors? The major miner ETF (GDX) is just a fraction in the red for 2011, whereas the junior gold miner ETF (GDXJ) has fallen more than 20 percent.

Foster:  I think it’s a function of the macro environment. It’s a function of what’s going on in the credit market. The producing companies are generating a tremendous amount of cash. They’re self-funding. They’ve got so much cash, they’re increasing their dividends. They’re able to fund all of their exploration and their capital needs internally. So they really don’t need to access the credit markets.

The juniors, on the other hand, these are smaller companies. And a lot of the juniors are development companies. Some aren’t even producing gold yet. They’re completely reliant on the equity and the debt markets for their funding. When the credit market starts to seize up and experience the problems that we see emanating from the eurozone, the companies that get hit the hardest in that environment would be the junior miners.

HAI:  There doesn’t seem to have been a lot of consolidation in the mining sector. Do you anticipate some of the junior miners starting to get bought up?

Foster:  Gold stocks have done very poorly in 2011. And you generally don’t see much M& A [merger and acquisition] activity unless companies feel good about their share prices. These stocks are trading at historically low valuations. So until management feels better about their share prices … . If they’re going to do an acquisition, they like to do it from a position of strength, when you’re talking about valuations and equity prices. So until we see more strength in  Gold  stocks, I don’t think we’re going to see a lot of M& A activity.

HAI:  Will higher gold prices push up those stocks? Or is it just a symptom of the market right now, where equities, in general, seemingly are punished, and that phase has to fade away?

Foster:  Well, you won’t get higher gold equity prices without a higher gold price. So that’s the first step in achieving a higher gold price, or establishing a positive trend in the gold market. As the second step, we would have to see more investors moving into these gold stocks. And for that to happen, we need to see these companies meet earnings expectations and show some good operating performance to attract investors back into the sector.

HAI:  For an investor who wants to follow gold miners, is there a particular index that you feel is better than another?

Foster:  I think the Amex Gold Miners Index (GDM) is the best and the most representative of the producing companies. The Market Vectors Junior Gold Miners Index (GDXJ) would be great for the juniors. The other ones, the XAU (PHLX Gold/Silver Sector Index) and the HUI (AMEX Gold Bugs Index), take a narrow slice of the sector, but they’re not as comprehensive as those other two.

HAI:  Is Van Eck contemplating any new gold ETF products?

Foster:  We’re looking at other funds, not necessarily ETFs. But we are looking at other forms of gold funds to bring to the market. But it’s too early to give you any details.



Source:  HardAssetsinvestor   

Are you baffled by gold’s fall?

By Chirag Mehta

The markets this year could be described as a battleground as commodities continued to collapse, the Euro zone crisis remained in the woods as yield soared at accelerated levels and the Euro plummeted, along with unease among the people. Historically,  Gold  tends to thrive in such uncertain times. To the contrary, we saw a sharp fall in gold prices.

Investors have all kinds of questions surrounding this unexpected decline in gold prices. Many are so perplexed that they are agreeing to the “gold bubble” story.

Gold analysts have created their own versions of the reasons surrounding this sharp decline. On that note, let us state that gold investors are currently seeing a decline of close to 19% from its peak in September of $1920.

A number of reasons such as the increase in Dollar, liquidation to fund losses in other assets / meet redemptions and severe slow down in physical demand are being ascribed to this fall in gold.

We believe that the liquidity argument is contributing to the decline in gold prices since at present liquidity is the focus of the market. The region’s sovereign debt crisis has undermined the Euro, while the Swiss Franc and Yen have fallen as their governments have drawn their tolerance limits.

There is no substitute to the Dollar that can absorb huge flows on account of liquidity issues. Also, the demand for Treasury securities that mature in under a year have increased as financial institutions boost holdings of the highest-quality assets to meet new regulations set by the Bank for International Settlements in Basel, Switzerland. Bank holdings of Treasuries and government-related debt totaled a record $1.69 trillion at the end of October 2011, up from less than $1.1 trillion in 2008. With the heightened emphasis on stronger liquidity positions for financial institutions around the world, we’ve seen an increase in the regulatory demand for liquid assets, but we’re not necessarily seeing an increase in the supply of liquid assets. They are meeting that need by holding Fed balances.

In addition, people are hoarding cash because they see that the U.S. Dollar is having trouble funding the market as banks shed Euro-denominated assets. Other traditional havens in times of market stress, the Swiss Franc and Yen, reached record highs against the Euro and Dollar respectively, this year before their central banks acted in September and October to drive them from their peaks. The U.S. Dollar has become the beneficiary on account of lack of available options particularly for large reserve portfolios that require exceptionally liquid markets, only the U.S. market can accommodate them.

There were increased talks that the Commercial banks were meeting their Dollar liquidity requirements by leasing gold to facilitate these loans at lower interest rates. After the massive swap arrangements made between the U.S. Fed and the E.C.B., many felt that they had overcome the problems of Dollar liquidity. However, by the extensive leasing of gold, this does not appear true. Although there is no factual data available, the negative lease rates does provide some support to the argument.
Yes, all these reasons do help us infer gold’s recent decline, if not completely.

We believe that the recent fall in  Gold  is probably more due to lack of catalysts that could have helped push it to record highs. In simple words, it is a move towards a more rational behavior despite the ongoing crisis. We’ve been used to seeing monetary interventions by central banks through monetary infusions to resolve the underlying issues and attempts to promote growth in such uncertain times. But this time, the market forces have pressured central banks to not bow down to such ill conceived notions.

The reluctance of central banks (although forced) to avoid further easing measures have in the short term removed the catalysts for gold prices to increase further. Markets were expecting an announcement of QE3 (Quantitative Easing) soon, which did not materialize even after the recent FOMC (Federal Open Market Committee) meeting. In the light of intensification of the Euro zone crisis, there was a view that the ECB (European Central Bank) would start printing to paper over the debt problems, but that has not taken place as yet. This reluctance has triggered a fall in gold prices.

So does this mark the change in the policymaking attitude? We do not think so.  Central banks continue to run into deficits, as there is no plan around cutting public spending which is a worrying issue. It’s likely that these market forces can only sustain until the deflationary forces remain subdued or the crisis doesn’t further intensify. On any of these signs, the trigger to print money at full capacity would be immediately in force.

Watch patiently until these criticalities in the eyes of policy makers wear off.  Some are even worried about gold’s recent tendency to move along with risk assets. Yes, it has been moving along, but the interpretations are different. Risk assets are selling off on account of worries over low growth that would ensue as debt deleveraging plays on and until the central banks do not get over their reluctance to intervene and promote growth by way of monetary infusions.

Gold has been declining on account of recent hesitation by policy makers to jump start their printing press as envisaged by many. Technical sell offs, liquidity issues and Dollar strength are only exacerbating the decline.

Earlier in this article, we had mentioned about market forces demanding a more rational decision-making at the center. The Fed’s earlier attempts at rounds of Quantitative Easing or money printing were highly criticized, as they have not aided the problem at hand. Therefore, they require justifications in order to carry out further QE rounds.

We reiterate that it is highly likely that policy makers would switch on their monetary infusion engines at the first signs of growing deflationary threat, liquidity tightness or it may be a contagion triggered by European debt woes. The decline in gold prices presents an opportunity even if in the interim, to increase allocation to gold. It is also possible that gold prices fall further and hence investors can use such opportunities to reach their desired allocation levels.