Morning Market Update November 26

Welcome to the Cyber Monday Market Update.  After precious metals buyers had their own Black Friday sales rush on mostly technical trading to close last week, the market looks to see if the momentum will carry over the weekend to today. Some experts say that the recent upward trading over the last week is starting to point towards October’s sell-off as a market correction consolidating September’s gains, and that $1,800/oz is the next near-term target.

Bulls do seem to have both the short and long term advantage, with recent “buy the dip” behavior acting to limit near-term downsides. However, there are some moderating influences – the EU has still not come to an agreement on the latest bailout of Greek economy, and the “Fiscal Cliff’ talks in the U.S. will move into the spotlight as Congress returns from Thanksgiving break. The U.S. dollar is seeing mild strengthening, which will also moderate the upside.

With all the focus on gold, it’s easy to overlook the fact that silver is outperforming gold percentage-wise during this upturn.  This morning, both gold and silver are trading around Friday’s close as we await the latest National Activity Index numbers and the Texas Manufacturing Outlook results.

by David Peterson

Is China Positioning Itself as the New Global Currency?

I’ve touched before how China is not only the #1 gold producer in the world, it is also the #2 gold consumer. None of China’s gold production makes it out of the country, and it imports as much as it can on top of that. A friend in Australia remarked to me when I mentioned all the Australian mines being bought by the Chinese, “They’re buying all our gold, too!” We know that China is also seeking to expand mining holdings in Africa. Industrial and consumer use can in no way explain this insatiable appetite for gold. China is building its gold reserves at a remarkable rate, though they try to be as obtuse about it as possible. With Eurozone debt crisis, Japan’s quantitative easing seemingly having no effect, and the prompt destruction of the U.S. economy assured if quantitative easing here is slowed or stopped, China is positioning itself not only to survive, but to be the new global currency.

Jim Sinclair does a sobering thought exercise by walking this thought all the way out to its conclusion in an article Monday. I confess that I had not thought that scenario out in such detail for that many steps. If China could pull off Steps #1 and #2 in Jim’s analysis, then the rest would readily follow. I can see #1 happening, but I think Putin’s ego may be a stumbling block in accepting the yuan as oil currency. Russia’s making hay selling all the natural gas and oil they can to Germany and the rest of Europe. (I’m sure Putin is happy having energy-starved Merkel under his thumb, and eliminating Germany as a political roadblock.) How bad would the Eurozone economy have to sink before Gazprom et al would shift focus to expand delivery infrastructure in their far east?

In all, an interesting thought, that so far is supported by the evidence we have. Remember, the Chinese are famous for taking the long view: A story about Kissinger asking Chou En-lai what he thought about the French Revolution has him replying “It’s too early to tell yet.” Just another reason to think of physical gold as a strategy to protect yourself.

-by David Peterson

Morning Precious Metals Update: Halloween Edition

Yay, Wall St. lives! (I guess.) We’re likely to see a jump into positive territory, at least initially, as people catch up from missing two days of trading. Spot gold took a quick dip at the opening bell, but quickly came back to flirt around the $1,720/oz. mark this morning.  Silver is still in its new comfort zone between $32 and $32.50 an ounce.  The U.S. dollar is pulling back from a 6-week high, helping gold prices. With today being the last trading day of the month, combined with the pent-up demand from the markets being closed two days, volume is likely to be high.  It will be interesting to see how this delayed demand interacts with the impulse for investors to have a “wait and see” attitude ahead of Friday’s U.S. jobs report.  The economic news out of Europe yesterday was less than rosy, helping precious metals prices overseas. I expect the muddled signs will begin to clear by the end of this atypical week in the markets.

-by David Peterson

A Strong Start for Gold and Silver in January

A Strong Start for Gold and Silver in January – Gold Gains 11.2%, Silver Gains 20.17%

The end of 2011 was a letdown for many precious investors as both gold and silver ended the year well off their respective yearly highs.  2012 has seen these memories overshadowed by a stellar start for precious metals, with gold and silver trouncing all other asset classes.

 

	1/2/2012	1/31/2012	Avg	Gain
Gold	$ 1,567.40	$ 1,744.00	$ 1,656.12	11.20%
Silver	$ 27.96	$ 33.60	$ 30.76	20.17%

Gold Seeking to Extend a 11-Year Run

Gold’s 10.28% advance in 2011 masked a very poor end to the year.  From its highs of $1,920 per troy ounce in September of 2011, gold limped into the year end with a 18.43% decline.  Nonetheless, gold extended its winning ways to 11 straight years, and with gold’s strong start to 2012, extending this streak to 12 years looks like its in the cards.  In fact, January’s 11.20% run has more than halved the fourth quarter decline, and many market forecasters are predicting another run at the $2,000 per troy ounce level sometime in 2012.

Silver Easily Outpaces Gold to Start 2012

Silver lived up to its reputation of being a more volatile precious metal in 2011, with silver investors enduring dramatic volatility.  Silver had started 2011 with a flourish, rising 55% and reaching a multi-year high of just under $48 per troy ounce on May 1st before suffering some dramatic plunges in the wake of two series of CME margin rate hikes, and escalating fears over the global economy.

January of 2012 has seen silver sprint 20.17% higher, easily recovering from 2011′s declines, and outpacing virtually all other asset classes and commodities.  Whether 2012 represents a break-out for silver, or perhaps a repeat of 2011 remains to be seen.  There is no doubt that if silver continues to advance at this rate, fears that the CME will step in with another series of margin increases will be sure to follow.

What are the Factors Driving Precious Metal Demand in 2012

While providing a definitive answer to this question is impossible, there is no shortage of opinions on this topic.  Among the most compelling has been the actions of central banks.  Both Europe’s ECB, and the U.S.’s Federal Reserve have undertaken a series of monetary operations to ease tensions within the global financial system, and spur general economic activity.

On December 8th, 2011, the ECB’s provided European banks with 489 billion EUR of much needed liquidity.  This operation, known as long term refinancing operation (LTRO) coincided with the end of gold and silver’s downturn in 2011.

On January 1st, 2012, the Federal Reserve extended its Zero Interest Rate Policy (ZIRP) from mid-2013 to at least late 2014.  The Fed also laid the groundwork for another round of quantitative easing, or QE3.  Both gold and silver immediately rose following this announcement.

Fun Silver Fact – 2011 U.S. Mint Silver Eagle Sales Hit Record

A good gauge of investor demand for silver are the U.S. Mint’s annual silver eagle sales numbers.  Despite a drop-off in November and December, 2011 was easily a new record as just under 40 million silver eagles were sold, or 39,868,500.  The prior record was 2010′s 34,662,500 silver eagle coins sold.