Day by day,
the case for holding gold and silver seems to get stronger as global
economies remain mired in recession and the centre of precious metals
demand moves ever eastwards.
Author: Lawrence Williams
LONDON -
Every day the case for investing in gold and silver would
appear to get stronger and stronger as worse economic news follows bad.
Gold and silver prices may get hit by stringent margin increases on
some exchanges, yet still they bounce back. It seems that whatever
ammunition the gold bears (whoever they may be - and suspicion falls on
‘official' channels and major banks holding short positions here among
others) throw at it the ‘monetary' precious metals regroup and bounce
back after a perhaps initial sharp retreat. It may well be that the
bears are running out of ammunition! Gold and silver may lose the odd
battle but they are certainly winning the war.
As has been pointed out in these pages time and again over the past
several months, or even years, the centre of gravity for gold demand is
moving ever further eastwards, which means that whatever western
institutions (and I use this term in its widest sense) may try to do to
curb its enthusiastic breakout they are ultimately doomed to failure.
The Chinese, Indians and other eastern investors who are psychologically
hard-wired into gold as the ultimate survival currency when times are
bad - a factor which equally affects their government attitudes to the
yellow metal - will call the tune and any splurge of western sales
quickly provokes an even stronger purchase response from the East.
Silver will continue to be dragged up on gold's coattails, and given
the far smaller market here we are likely to see more volatility -
although it has been interesting to note silver's recent relative
resilience to the occasional sharp gold price downward moves each time
some obstacle is driven into its advancing path. It really cannot be
too long before the magic $50 level for silver is surpassed and after a
likely hiccup around this level, the floodgates could open. I am not a
believer in the Gold:Silver ratio falling down to 16 or even less - at
least not in the foreseeable future, but 30 does not seem unreasonable
and that would put silver at comfortably over $60 at the current gold
price level.
Another boost to silver is also an indirect consequence of gold's
strength. Increasingly the small investor who wants some precious metal
insurance against hard times ahead is being priced out of buying gold -
and then silver becomes a real alternative. Do not be surprised to see
silver demand continuing to increase strongly, particularly in the
emerging nations as at least some growth here sees more and more people
becoming part of the middle classes - and middle class aspirations in
many of these nations will include holding some precious metals against a
rainy day.
It is also becoming increasingly apparent - in part through the
demand patterns noted above - that any truly speculative element in gold
(and silver) purchasing is probably relatively minor in its impact and
the demand for the key precious metals is coming from holders who will
only sell as a last resort - not to make a quick buck. The radical
difference in psyche between the Western speculator and the Eastern
accumulator is paramount in the price advances we are seeing now. But
now there is also an increasing element of western accumulation as a
wealth protector too. With other safe havens like the Swiss Franc, and
perhaps the Japanese Yen, even more prone to government intervention to
balance domestic competitiveness in world markets, the role of gold as
an insurance policy is getting stronger by the day. And this insurance
is likely to remain in strong hands until the world is seen as coming
out of recession - which looks to be years ahead still.
Add to the above the almost daily news items that various central
banks are increasing their gold holdings - many by buying their own
country's outputs (Bolivia is the latest of these) - and it would seem
that the amount of gold becoming available to prospective purchasers may
be diminishing by the day. Indeed there is wide belief that other
Central Banks from gold producing nations - China being by far the
largest of these - are also purchasing all their domestic outputs, but
placing this in accounts which are not reported as part of their
official holdings until such time as it becomes politically expedient to
do so.
Meanwhile higher prices have not yet been able to stimulate any
significant increase in mined output due to declining grades and end of
mine lives counterbalancing any new output that may be coming on stream,
which is further restricting supplies. With growing demand, which
looks unlikely to diminish in the near future, the squeeze on precious
metals prices looks almost certain to drive the gold price onwards and
upwards.
Gold miners, on the other hand, do not appear to have been reaping
the benefits of the advancing gold price - at least as far as their
stock prices are concerned. But, with gold's price rise so far this
year of over 30% in dollar terms, many miners will be showing massive Q3
profit increases when they come to report which may well really begin
to stimulate precious metals mining investment interest at a time when
the general stock market is appearing increasingly shaky.
All in all it seems to this observer that gold and silver are nowhere
near their peaks yet. $2000 gold and plus $50 silver have to remain as
definite possibilities even this year and there is likely much higher
to come ahead as the global economy seems nowhere yet near coming out of
its severe downturn. While continuing lack of global growth may not
bode well for the short to medium term price patterns for industrial
commodities it could well see gold and silver rise to ever increasing
heights.
Source: http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=135114&sn=Detail&pid=102055
No comments:
Post a Comment