Gold & Silver Digest: 5/21/13
The Gold & Silver Digest contains headlines of stories that members of this group deem relevant and/or interesting to precious metals enthusiasts.
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5/21/13 7:56 PM EST US close metals price quotes from Finviz
Gold trimmed its losses on Tuesday as the euro regained strength against the dollar, but the metal remained lower on weak chart signs and fears the U.S. Federal Reserve will wind down its economic stimulus program.
The precious metal, down in seven of the last eight sessions, has been hit since the start of the year as investors shift into higher-yielding equities on signs that economic growth is picking up, especially in the United States.
On Monday gold slid to $1,338.95, its weakest level since April 16, before gaining 2.6 percent in U.S. trade and snapping a seven-session slide, its longest losing streak since March 2009.
Join Mike Maloney, #1 Best Selling Author, in the GoldSilver boardroom as he answers just what is going on with gold and silver prices
The recent downward price action in the precious metals markets have left many bullion investors unsettled. Mike explains it is at times like these that the big picture needs to be kept in mind stating, "this thing ( gold and silver bull market ) isn't over with until the fundamentals say it's over with".
"The gold-silver ratio has risen to its highest point in three years (August 2010) and in the past this served as a flash-point for a renewed risk-off trade. See the chart below and the divergence (S&P 500 surging and the gold-silver ratio sliding — historically this has a 71% correlation, likely because silver has far more industrial applications and as such this ratio is viewed as somewhat of a global economic barometer.) I have to say that when I read the front page of the USA Today business section and see this lead title: With Stocks This Hot, Why Worry?, with famed strategist Ed Yardeni declaring this to be the "mother of all melt-ups," I do begin to worry. The bull market may well be in complacency."
London-listed gold producer Petropavlovsk has said it will pre-sell 55pc of its future output planned for the second quarter of 2014, at an average price of $1,408 an ounce. This is the first time that a big producer has hedged more than half its future sales.
“We have a huge investment programme and thought a little price protection in the short-term will let us sleep better at night,” said chairman Peter Hambro.
Tyler Broda from Nomura said this may signal the return of “structural hedging” across the industry, with other companies scrambling to lock in forward contracts. “This could increase the pressure on the spot gold price over the coming years,” he said. The risk is a vicious circle as hedging leads to lower prices, leading to more hedging.
An ounce of gold, often represented by a single American Eagle coin, is a fairly easy thing to visualize. Even a 400 ounce gold bar, like the ones held at Fort Knox, is a fairly fathomable concept. But when you try to get your head around just how much of the metal an ETF like the SPRD Gold Shares (GLD) owns, it can get a little daunting. And the same is true when you try to track how much they've had to sell as the price of gold slips to a 2-1/2 year low.
"300 tons," says Tom Lydon, the editor of ETF Trends, in the attached video, calling the disposal of over 600,000 pounds of gold so far this year "amazing" and "incredible."
This, of course, as the largest metal-tracking fund has gone from briefly being the biggest ETF, to being a top-5 player after being cut in half to approximately $46 billion in value today, holding just over 1,000 tons of gold in its vaults.
This accidental discovery will hopefully transform the industry
Mining gold's a dirty business. To extract gold from raw ore, a lot of cyanide is required, and wherever a lot of cyanide is found, there are also big environmental risks. But what if we could replace all this cyanide with something as benign as cornstarch? Scientists from Northwestern University might have, by accident, figured out a way to do just that.
This has been one of the worst stretches for gold and silver pricewise in quite some time, no secret there. I have to go back to when silver was in single digits to find a comparable period. The question on precious metals investors’ minds is whether this bad stretch is going to continue much longer. Are the past few months setting the stage for a pronounced rebound in prices or has the tide changed for the worse for an extended period of time? I think the answer can be found in analyzing the following facts.
One of the key considerations in gold has been the redemption of more than 10 million ounces (over $15 billion) since year end from the world’s largest gold Exchange Traded Fund, GLD. That is a major amount of gold and represents around 25% of the entire holdings in GLD (at year end). The gold ETF holds the largest privately held stockpiles of the metal. Consequently it has a pronounced influence on gold prices
- After the 1929 crash, the US Treasury & the Fed worked together. They revalued gold, and began a program of quantitative easing (QE).
- Eight years later, in 1937, the Fed started tightening credit by raising interest rates, and America plunged back into economic depression.
- After the 2008 crash, America entered into a very severe recession, and the Fed began a new quantitative easing program.
Martin Armstrong stated in his blog Post that the reason for the "flash crash" in silver on Sunday night, May 19, was due to the lack of bids. He goes on further to say "Despite the gold/silver promoters, there is no expansion of buyers for the precious metals. It has been the same choir over and over again."
While I have a lot of respect for Martin Armstrong's work on his pi-cycles, it amazes me when he makes a comment such as this. Of course there were a lack of bids during one of the most thinly traded times of the day — it goes without saying.
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.
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