What Is Going on With Gold and Silver?

March 29, 2013 | By | Reply More

Yes. What is going on with gold and silver? You may well ask! Thanks to the Cyprus situation the fundamentals for precious metals are going from strength to strength. Sales of US Gold Eagle and Silver Eagles are setting records and we read that insider buying of gold and silver mining stocks are approaching record highs.

Physical gold and silver continue in much demand, particularly from China and Russia while question marks continue to loom over the US gold reserves, not audited since Eisenhower was the US President way back in the fifties and beginning of the sixties.

Over fifty years since citizens of the United States have been updated on their nations true wealth. Germany has been told that its own gold, held in the US as a safeguard against Russian aggression during the cold war, will not, or cannot, be delivered until 2020. Seems to us that their gold is still in jeopardy despite the ending of the cold war.

Still the price languishes around $1600 an oz. so just what is going on with gold and silver?

Banks, Greed and Cyprus Set the Euro Scene

The actions by the Euro bureaucrats in what amounts to stealing from Cypriot bank depositors together with other restrictions on the free flow of the euro currency by its citizens is contrary to the declared intent that the euro be the free flowing common currency between participating nations.

The result is simply that yet another nail has been hammered very publicly into the Euro’s coffin. This grandiose scheme devised by inept politicians is crumbling largely due to their inability to face up to the fact that all the European nations have individual differences in most the important aspects of their national lives.

From political ideologies, where accepting corruption at various levels has become ingrained, Spain, Italy and Luxembourg spring readily to mind where it is endemic at the highest level of government, down to the more northern countries of the union where a more subtle form of reward for favours received is just as prevalent.

Nationalism, aka pride in your country, plays its part in the inability of both the elite and the rank and file of the participating nations to reconcile their differences and then there are the banks whose greed and criminal practices have done so much to accelerate the European crisis.

Inflation is a Steal

This brings us to the dollar. Faced this week with the realities of Europe it is not surprising that money has flowed into the dollar via the US stock markets and treasuries as a safer haven than other even weaker major currencies of the developed world.

What surprises us is that gold, silver and PGMs have not seemed to have benefited even to the smallest extent as safe haven assets. It seems hardly likely that the historical reason for owning gold is as wealth preserver in times of inflation is being ignored.

The definition of inflation is an undue expansion of the money supply in proportion to its buying power. If printing $85 billion each and every month for an indefinite period is not a definition of an undue expansion of the money supply or an excessive issue of fiduciary money then perhaps we have nothing to fear from inflation.

However we read that if current inflation was measured in the same way as in President Carter’s day the figure would be in excess of 10% p.a. That’s bad enough but with interest on savings being practically negligible, every dollar saved now will only be worth 90 cents next April! Another way to steal your money.

With 85 billion new dollars being printed every month can you really believe that inflation can be contained at an acceptable level, however much the figures are massaged!

Distrust of ETFs a Factor

The flight of gold from bullion holding ETFs, particularly SPDR Gold Trust (GLD) is a fact that cannot be overlooked in any analysis of the price of gold. Our take on this is two fold.

While physical gold continues to have solid support we think that there is a distrust in paper gold, especially now that governments have been given a virtual green light by the Cyprus situation to confiscate or take a lien on assets held in banks, depositories et al.

In the same vein, there is no absolute guaranty that all the paper gold held by the ETFs could be physically delivered at one time as the ETFs do not hold the gold in their own depositories. Unlike buying gold through such as Bullion Vaults where depositors can take delivery of their holdings and store at home.

Silver Wheaton a Safe Bet

The second reason is that the fear factor has all but disappeared from the stock markets. Investors are seeing stocks breaking out to pre 2008 levels. The rise has been rapid and it is the investors nature to follow the herd. We are not here to discuss stocks but just to say we are now out and happy to admit all our own investment resources are in precious metals and mining, such is our distrust of current stock market activity.

However, we are not bold enough to encourage our readers to follow the same path but would advise that, in today’s circumstances, give some thought to putting in between ten and twenty percent of your investment capital into physical gold or silver, then if you want a gamble, the precious metal mining sector is looking cheap and way oversold. Our other favorite in this sector is Silver Wheaton (SLW), it has just announced record figures and pays a decent regular dividend.

Gold Has Strong Support At Just Under the $1600 an oz. Level

So what is going on with gold and silver? The one factor that is impossible for us to gauge is market manipulation. It is an indisputable fact that when the dollar is strong gold will be weak and vice versa. Right now, as we have seen, the dollar is looking good, at least in the very short term.

It is in the interest of the central banks with the Fed in the forefront to play down gold to keep their currencies looking safe and sound. In the grand scheme of investing gold is a small market and silver tiny. Gold and silver generally rise and fall in tandem so it does not take much to move the silver price which is then likely to affect the gold price.

There are strong suspicions that this is just what is happening but who knows for sure? The interesting fact is that spot gold has a strong floor just under $1600 an oz. meaning that there are buyers (could they be Chinese?) waiting to get in at that level, but once it looks set to rise it is knocked back to below the level.

However, the future looks optimistic, the ratio of forward longs to short contracts has risen in the aftermath of Cyprus, and there are some analysts predicting big rises for gold, silver and platinum by the years end in contrast to the last few months of doom and gloom. We will hold on, keep our fingers crossed and wait and see patiently.

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Category: Gold

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