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| You are here : Home >> Top Story >> Report | |||||||||
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| 2008-10-14 14:50:00 | |||||||||
Silver may outshine gold
By Jon Nadler The new week got off to a mixed start following Friday's price demolition derby in precious and base metals. With Japan, Canada, and portions of the US system out on holiday, trading might be thinner and choppier than normal - whatever 'normal' may mean anymore... Gold prices remained not far from where they left off last week, opening in NY at $855 as participants awaited to see what -if anything- of all that which has been thrown at the global wall or worry by the world's moneymen manages to stick. Silver rose 42 cents to open at $10.60 per ounce, while platinum and palladium showed modest gains – the former adding $5 to $992 and the latter gaining $7 to $196 per ounce. Friday's price action in gold "demonstrates how quickly demand for a safe haven could fade, and that even gold is not a secure store of value," said Peter Fertig, an analyst at Dresdner Kleinwort. Evidently, fiat cash (of any type) appears not to be headed for extinction quite yet. In that respect, 'this' is not 'it.' Newsletter vendors may wish to keep accepting fiat money from their remaining flock of faithful for the next installment of the doomsday chronicles.y Stocks and oil may gain on the day as glimmers of confidence may be detected in the smoldering rubble. However, the near- 40% rout in commodities that started in early July is being perceived as only about half over, according to hedge fund managers and economists. Spending has come to a halt worldwide. "Stuff" will be in demand only to the extent it is somehow essential. At the moment, Indian buyers deem gold to be less than 'essential' given its price in the mid 800’s. Festival-oriented buying is only expected to revive if values were to ease to $800 or below. Like, say, the $730 we witnessed not that many weeks ago. A weekend full of meetings all over the world had national leaders and central bankers figuring out what to do about the continuing implosion in the global financial system. In effect, every G-panel (the 7, 12, and even the 20), plus the IMF, World Bank, and a Eurozone summit all tried to offer virtually anything it might take to halt the meltdown and to restore confidence. The latter, of course, will be the hard part. Previews of scary scenarios were already playing out in Iceland, where food was being emptied from shelves and people wanting to take money out of the country had to prove the funds were intended for leisure trips abroad. In addition, the World Bank warned that the man-made catastrophe which started in the well-to-do world will likely have a severe and permanent negative effect on the poorest and still developing countries. "While short on the details many market analysts had hoped for, the broad brushstrokes of forceful, coordinated action by Western governments were unveiled: No more Lehman Brothers-like failures of major financial institutions will be allowed. All bank deposits will be guaranteed. The banking systems of the G-7 nations will be flooded with almost unlimited liquidity. And if all that fails, any other tool-regardless of how economically unorthodox-will be used if needed." - a synopsis of things to come, as brought to you by Business Week. No need to read between the lines. No need to wonder what 'any other tool' might imply. Basically, anything has just become possible. We repeat, one of these days, the word 'gold' will find its way into one of these communiques. In the interim, let's look at silver. Herewith, a fairly bullish take on the metal which is currently struggling to regain its footing around the mid-$10 level. Barron's Allen Sykora reports: " INDUSTRIAL COMMODITIES GOT GUTTED again last week, yet a bright spot remains -- in silver futures. While they've hugely sold off since hitting historic highs around midsummer, demand for coins and bars remains strong, setting up the metal for a rally through next spring. Last week's action made silver's price even more attractive. At one point December silver was up $1.03 an ounce for the week, as global stock markets melted on credit-crisis fears. But silver then got caught up in selling across commodities in the final hour of trading, to settle Friday at $10.60, down by 72.5 cents, or 6.4% on the week. Silver futures are off 46% from a mid-July high of $19.705 an ounce, and hit an interim low of $10.31 in September). The Continuous Commodity Index, an updated version of the CRB which tracks the overall performance of the commodities markets, set a 14-month low Friday at 392.33, off its July high of 615.04. Numerous haven-seekers bought gold in the past month, but many more investors can be expected to seek silver. "When gold takes off, people will look for a cheap alternative," says Gijsbert Groenewegen, managing partner of Gold Arrow Capital Management. "That's why silver is called poor-man's gold." Coin and bar sales have been so robust -- the U.S. Mint now is rationing American Eagle coins -- that dealers say they can't meet small-investor demand. "That's going to continue, because the economic problems the world is facing...are probably going to get worse," says Jeffrey Christian, managing director of commodities researcher CPM Group. "Sooner or later, physical trumps paper [markets] and the price of silver goes back up sharply." Analysts look for the price of the white metal to rise to between $14.50 and $24 by the end of next year's first quarter. December gold has rallied already from a 2008 low last month of $739.80 to Oct. 10 peak of $936.30. Silver could soon follow that trend. This is especially the case since above-ground silver inventories are less than in gold, Even though we didn't have a significant gain in the last two weeks of total chaos, it could still happen and silver historically was viewed as currency before gold. Silver lagged in the past month, since it relies on demand, unlike a monetary asset, says Bart Melek, BMO Capital Markets commodity strategist. Uses include jewelry, dentistry, electronics and more. "Those will be impacted by the slowdown globally in manufacturing and consumer spending," Melek adds. When the economy turns around, it should add luster to silver by increasing industrial demand, analysts say. Furthermore, newer uses for silver are replacing lost photography demand. Silver conducts electricity at lower heat loads than other metals, and is used in laptops, cell phones and iPhones. One sign of investment is that holdings in iShares Silver Trust (ticker: SLV), an exchange-traded fund, hit 200 million ounces for the first time in July, and were up to 220 million on Thursday. Since many types of coins and bars are hard to obtain, Christian says, some haven-seekers "buy the ETF instead." Keep alert for official statements, market reactions, and investor behavior in general - Now, more than ever, important clues are to be ascertained if one intends to participate in this trading environment. Bravery required for any applicant. |
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