Downward Pressure On Silver And Gold Spot Prices

April 17, 2009 | By | Reply More

The continuing rise in equity markets and the current slowdown in inflation are putting downward pressure on silver and gold spot prices despite the general long-term optimism for both metals remaining in place.

Demand for both metals has weakened as US consumer prices have fallen undermining the metals safe haven status.

We note that there are some learned minds that treat many of the statistics that emanate from the US government with more than a pinch of salt!

Gold bugs will take heart that India has returned to buying mode, importing 10 tonnes of gold in the first two weeks of this April compared to the April 2008 total of 24 tonnes.

Opinion among both fundamental and technical analysts remains divided. On the one hand if gold breaks down below support at around $850 an ounce, then $800 an ounce will be the next stop.

The other point of view is that further falls will herald a solid buying opportunity and that Indian demand will become substantial by late summer.

Our view is that we have entered ‘no mans land’ and believe that both metals will bounce back strongly when soaring inflation becomes evident, but that may well be anything from six months to three years in arriving.

In the meantime the bad economic news, to which we have become accustomed, is now being interpreted as being good news, as it is not quite as bad as the last month or quarter!

So the equity indexes continue to rise although many sectors are still as much as 40%-50% off their highs.

Seen in that light it comes as no surprise that bargain hunters are raising their heads above the parapet.

Whether that means the lows are behind us remains to be seen and we have no idea of the outcome. That this is a bear market rally is clearly a possibility, in which case as equity markets hit new lows so silver and gold should prosper within a shorter time scale than when the inflationary scenario plays out.

Whatever the future holds, we expect silver to outperform gold. If economies are picking up as our leaders are telling us, then silver will benefit from its much greater industrial use than gold.

The gold silver ratio has risen above 71, historically very high, indicating that in the near term silver will rise faster than gold but may not have quite so much downside percentage wise.

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