Gold & Silver Digest: 5/17/13

Adam Taggart
By Adam Taggart on Fri, May 17, 2013 - 7:33pm

The Gold & Silver Digest contains headlines of stories that members of this group deem relevant and/or interesting to precious metals enthusiasts.

If you have articles to submit for the next digest, please email them to me by clicking here.

5/17/13 7:32 PM EST US close metals price quotes from Finviz

Reuters: Gold hits 1-month low as Fed pressured to end stimulus

Gold fell for a seventh straight session on Friday, its longest losing streak in four years, as the dollar rose to the highest since 2008 after some Federal Reserve officials said the central bank should end its stimulus for the U.S. economy.

Investors also rejected gold's safe-haven lure after a May reading for U.S. consumer sentiment hit a near six-year high, showing Americans are feeling better about their financial and economic prospects.

Yahoo! Finance: Jim Rogers on Gold: Continues to Have a Long Overdue Correction

It’s been a rough week for gold. Prices fell for a seventh day in a row Friday morning, marking the worst slump since March 2009, according to Bloomberg Businessweek. By mid-morning gold futures were trading at $1,362 an ounce, down almost 2% from the previous close and 28% from the September 2011 high of $1,920.

Explanations for the latest dive range from the strengthening U.S. dollar to the shrinking holdings of gold exchange-traded funds, which are not offset by increased demand from India and China.

Fox Busniess: Should Gold Bugs Be Worried About Global Demand?

Since hitting all-time nominal highs above $1,900 an ounce, the price of gold has suffered an ugly correction. The precious metal recently logged its second consecutive quarterly loss, and remains stuck in a downtrend. Some investors have become discouraged, but demand is not as bearish as one might think.

In the first quarter of 2013, total gold demand reached 963 tonnes, representing a 13 percent drop from a year earlier, according to the latest report from the World Gold Council. Heavy selling pressure and outflows from exchange-traded funds accounted for the majority of this decline. For example, shares of the SPDR Gold Trust, the largest gold fund, declined 4.7 percent in the first quarter. Total outflows in ETFs and similar products amounted to 176.9 tonnes.

Business Insider: CREDIT SUISSE: 'Gold Is Going To Get Crushed'

Bearish sentiment toward gold has prices for the yellow metal tumbling again.

On Wednesday, George Soros revealed through a regulatory filing that he cut his gold exposure during the first quarter.

Speaking to reporters in London, Credit Suisse's Ric Deverall forecasted that gold would plunge to $1,100 this year and eventually to $1,000 within five years.  This according to Bloomberg's Maria Kolesnikova.

Business Insider: Here Are All The Ways The World Uses Gold

So what's gold good for?

The gold skeptics will tell you that the yellow metal serves no purpose and therefore has no intrinsic value.

The gold bulls will try to convince you that it's a safe storage of value.

Believe it or not, gold has plenty of real-world applications.

Acting Man: Gold – An Update

Technical Trouble

Last week we thought that a small show of relative strength in gold stocks might finally represent a meaningful signal – but it has now turned out it was just another trap, at least in the short term. There are several things worth noting about the recent action in gold. For one thing, it is so far technically very weak. Gold didn't even make it back to the previously broken area of support in the $1525-$1550 range before turning lower again. In the process a new short term resistance level has been created. In addition, the about-turn in gold stocks was so large that they have once again outpaced and led gold to the downside.

While gold ended Wednesday's session about $70 above its intra-day crash low of mid April, GDX and HUI ended the day right at their equivalent lows. The HUI-gold ratio has in the process declined to yet another low for the move.  As we have said before, gold stocks have been leading gold lower since the beginning of the current bear phase. There can probably be no turnaround that sticks until they really begin to gain in relative strength.

GoldSilver.com: The Last Investable Moment for Silver

In the context of the current U.S. Dollar valuation bubble, silver’s eventual price rise seem inevitable. This paper currency bubble commenced with a desperate flight to quality, despite the fact that the U.S. Dollar had been an intrinsically worthless currency since it was taken off the gold standard by Nixon in the early 1970’s.

Silver is one of many sought after investment choices when risk aversion is high. What makes it a convenient choice happens to be that the metallic commodity has special qualities that have historically made it one of the best forms of money.

The key is not to say that silver would necessarily become a medium of exchange, although it might indeed be useful as an asset that could be bartered in an emergency situation.

Hubert Moolman: Silver Price Forecast: Silver and the Dow

The Dow making new highs is likely to be very good news for silver investors, because nominal silver peaks tend to come after significant nominal peaks in the Dow. These stock market rallies are driven by the expansion of the money supply, causing a big increase in value of paper assets (including stocks) relative to real assets.

When the increase in credit or the money supply has run its course, and is unable to drive paper price higher; value then flees from paper assets to safe assets such as physical gold and silver, causing massive price increases.

The two most significant nominal peaks of the Dow were in 1929 and 1973. Silver made a significant peak in 1935, about six years after the Dow’s major peak in 1929. Again, in 1980, silver made a significant peak, about seven years after the Dow’s major peak in 1973. So, if the Dow is currently forming a major peak (like I think it is), we could possibly expect a major peak in silver, towards the end of this decade to early next decade. This means we are likely to have rising silver prices for many years to come.

Golem XIV: Paper gold, Metal gold – when worlds diverge.

The price of gold is going down. That is what the charts, newspapers and pundits are all saying. What I think they are deliberately not saying is that the value and desirability, as opposed to the price of gold, is going up and will go up further.

Make no sense?  Well I think it does if you remember there are two types of ‘gold’ for sale. One is metal, the other is paper. It is paper gold that is being dumped not the metal. The metal is being bought at a fair old rate. But because there is so much paper gold around and the major sellers and market makers in paper gold prefer metal and paper to be confused, even thought to be identical (their trade depends on this confusion), no one seems to be pointing out the very different dynamic happening in paper and  metal gold.

321Gold: The Next Silver Takeout

It always seems that it is darkest just before the dawn. I recall well the pain of junior resource owners in mid-2001. The XAU was up 36% over the prior six months but it seemed it would take forever to value to come into the space. 

I just went back and reread the very first piece I ever wrote about junior mining stocks from May of 2001. Read it, you will be surprised at how well I captured not only the moment but also what was going to happen over the next decade. We didn’t even start 321gold until two months later, at the time we had a computer online business. It was a good call then and it’s a good call now. 

I could change the date on the piece and post the article today and it would be just as timely as it was then. All investors today hate gold, hate silver and consider the penny dreadfuls the spawn of the devil. That’s a really good time to be buying.

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