Lawrence Williams
Eurozone hits the fan: Gold price surging; Silver begins to make a move
For some weeks and months now, commentators writing on Mineweb have
seen the current Eurozone debt crisis escalating to the point of
defaults and despair. To a great extent the general public has let it
pass by. Probably 99% of the population has taken the view that this is
some temporary phenomenon and won't impact their lives. But this head
in the sand attitude is at last beginning to change - in Europe at least
- and no doubt the realization is beginning to dawn across the Atlantic
that this is not just a European crisis, but a global one. Many
of the problems that are currently besetting the Eurozone are endemic
in the U.S. at state level too and slowly, but surely, as poor economic
data belies any talk of economic recovery, the realization that things
may get far worse before they even start to get better is beginning to
dawn in the world's biggest economy as well.
Today in Europe the mainstream news broadcasts are full of Eurozone
debt related stories: Irish debt downgrade to junk status following
Portugal; talk of Greece being allowed some form of default; the looming
debt crises in the big economies of Italy and Spain - the Eurozone's
third and fourth largest - coming to the fore again. We are
looking at financial collapse in a string of possible defaults across
Europe and if they occur one doesn't see how the global banking system
can survive. Those who have been preaching that gold may be
the only investment out there which stands much chance of preserving
one's wealth - the ultimate safe haven - look like their views may be
being vindicated as I write with the gold price jumping up through
$1570 and back within a hair's breadth of its intra-day high of a couple
of months ago. It is almost certainly going to set a new London Fixing
record this morning (indeed will have done so by the time this article
sees the light of day) and the breach may extend all the way up to
$1600, although last time we saw that coming back at the beginning of
May we were quickly disillusioned. But this time it looks to be
different!
There is now again official talk in the U.S. of a continuation of
some additional financial stimulus from the Fed being necessary to
prevent the U.S. economy falling into recession again - QE3 by any other
name - and even China, which has been seen as the globe's savior with
its seemingly unending economic growth is facing severe inflationary
pressures which are forcing the government there to tighten ever more
which ultimately has to dent that economy's advance, although still only
back to a level that most Western governments would give their eye
teeth to achieve. The QE3 talk dented the dollar, which had been rising
against the Euro over the previous few days, giving another boost to
the dollar gold price.
Not surprisingly with all the doom and gloom in the financial
markets, gold - and at long last silver - are beginning to make a new
serious move to the upside after a couple of months languishing in the
northern summer doldrums. This summer the dull period may well be
ending very early for the precious metals!
The move also seems to be very much towards holding physical gold and
silver too. ETF holdings have been static to falling much of this year
and perhaps, as the realization dawns that even the biggest global
banks are far from safe from collapse in the current economic
environment, physical metal will come to the fore more and more,
although the storage problems for significant quantities of gold, and
particularly silver, should not be underestimated. The location where
one should store precious metals is also something to be considered.
Might the U.S. confiscate gold again ahead of a major revaluation?
Perhaps unlikely but the possibility will remain in people's minds.
There are signs too that silver may be beginning to move up again on
gold's coattails. The gold:silver ratio (GSR) remains at around the
43:1 level and the basic fundamentals whereby silver has a much more
prevalent industrial usage percentage than gold could mean this sector
of demand may suffer in a continuing recession. However, as Eric Sprott
- and many others - continuously point out the volumes of silver traded
are enormously in excess of the actual supply and it would not take
much to create the impression of big supply shortages should more and
more people demand delivery of physical metal which could just be
beginning to happen. As an investment metal silver has some major
attractions in terms of price with the small investor able and willing
to buy relatively large amounts, which with a gold price in the high
$1500s they may be unwilling psychologically to do with the yellow metal
itself - whatever they see as its investment merits.
Silver has proved to be much more volatile than gold - on the upside
and on the downside - and any prolonged rise in the gold price will
likely see silver move up even faster - and if this starts to happen
momentum could build again as it did in the first few months of this
year. Whether silver will ever get back to a GSR of 16:1 as Eric Sprott
predicts may be yet be a very long way away, but one could certainly
see a return to around 30:1 which could see silver outperforming gold
again quite substantially. But then maybe too many fingers got burnt in
silver's run up to close to $50 in April/May - and subsequent fallback
to around $32 - for a quick recovery to occur, but overall, if gold
continues to move up silver will still probably rise faster in
percentage terms and if the market starts to see the earlier sharp
downturn as overdone this advantage could accelerate.
No comments:
Post a Comment