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Silver Seen Over $40/oz in 2012 – Store of Value Remains Undervalued

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Published : April 21st, 2012
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Category : Market Analysis





Gold’s London AM fix this morning was USD 1,640.00, EUR 1,246.30, and GBP 1,018.25 per ounce. Yesterday's AM fix was USD 1,642.00, EUR 1,249.91 and GBP 1,022.73 per ounce.

Silver is trading at $31.78/oz, €24.10/oz and £19.73/oz. Platinum is trading at $1,578.00/oz, palladium at $659.90/oz and rhodium at $1,350/oz.

Cross Currency Table – (Bloomberg)

Gold rose $1.50 or 0.09% in New York and closed at $1,640.80/oz yesterday. Gold traded sideways in a narrow spread in Asia and continued this in European trading climbing up around 0.16%.

Gold rose quickly from $1,631/oz to nearly $1,650/oz in minutes on volume with some chunky 3000 lot plus batches of orders going through on the COMEX pushing gold up. A determined seller again appeared and gains were capped at that level.

Gold is still firmly within a $27 trading range it has stuck to for most of the week. It is gold’s narrowest range since March last year according to Jan Harvey of Reuters. Once gold breaks out of this range it will likely see sharp follow through moves up or down.

Gold should be supported by deepening concerns about continuing poor US economic data and the eurozone debt crisis – Spain’s 10 year rose above 6% again today. However, the lack of direction and price weakness has seen weak hands flushed out of the market and has made prospective traders and investors nervous regarding buying.

Some astute store of wealth buyers continue to buy (gold and especially silver bullion) on the dip but physical demand remains subdued in western markets as both speculators and some investors seek clarity regarding price direction.

In Washington today, finance ministers and central bankers from the Group of 20 economies meet. Russia said that G20 countries were ready to commit enough new funds to fulfill IMF chief Christine Lagarde's request for at least $400 billion in an attempt, some would say vain, to draw a line under the euro-zone crisis. Russia itself said it would offer $10 billion.

Also in Washington, the IMF will be holding a panel meeting to discuss the euro area crisis at 1530 GMT.

France’s Presidential elections start Saturday and should Sarkozy lose it could lead to volatility in European financial markets.

Next Tuesday and Wednesday the FOMC meet and investors expect them to adopt a ‘wait and see’ approach to QE. However the sluggish economic data out of the US could allow them to announce yet another round of QE which would be bullish for gold.

Geopolitical risk remains high with instability and unrest in much of North Africa and the Middle East. Tensions between western nations and Syria and Iran continue and risk escalating.

There are also simmering geopolitical tensions between the US and China (see Other News) which could manifest in trade, economic or currency tension and wars.

Silver Seen Over $40/oz in 2012 – Store of Value Remains Undervalued
Thomson Reuters GFMS, in its annual review of the market published by the Silver Institute, have said that silver could push towards $40/oz in the second half of 2012.

GFMS said that it does not expect silver to approach $50/oz. In February, last year GFMS said the same thing - that silver would reach $40/oz and not $50/oz. Silver subsequently rose to over $49/oz in April 2011.

Silver in USD 2 Year – (Bloomberg)

It is worth remembering that at the start of 2012, most analysts were again bearish on silver and there was much speculation that the silver bubble had burst after silver had reached the nominal high of $50/oz and subsequently fell sharply leading to a 10% loss in dollar terms in 2011.

However, reports of silver’s demise will likely again be seen as foolhardy.

Silver was the top performing commodity and currency in the first quarter of 2012 seeing gains of over 16% in Q1 2012.

Silver outperformed gold to the upside and rose 16% in dollars and 12% in pounds and euros, 7% in Swiss francs and by a whopping 20% in Japanese yen.

Yet, silver remains one of the most infrequently covered markets in the world. Non specialist financial press and media rarely if ever cover silver. What coverage silver gets is often quite negative and unfavourable. This has kept animal spirits in the silver market very low and demand continues to be from industry and from Asian, Western and other store of value buyers.

Much of the reporting on silver continues to focus on silver as an investment and on silver’s volatility. It fails to acknowledge silver as a store of value and as financial insurance against monetary and economic collapse.

This is the primary motivation of many silver buyers today and to ignore it is unfortunate and can lead to defective analysis.

Silver in USD 5 Year – (Bloomberg)

Some of those who bought silver in 2011 as an investment may have sold or may be reluctant to buy more silver due to the volatility seen. We have long pointed out that silver is not an investment rather it is a store of value and a form of financial insurance. It is a long term buy - until it has to be sold– or a permanent holding.

Those who realise that can stomach the short term price swings that are typical in the silver market.

Those who do not will be end up selling the precious metal that will protect them from currency crises and or a systemic collapse.

Silver remains undervalued from a long term historical inflation adjusted perspective (see chart below).

Our long held belief that silver could reach the real high, inflation adjusted, of $130/oz from 1980 remains.

Immediate support is at $31/oz and below that at $27/oz and store of value buyers should continue to accumulate on the dip.

However price forecasts by all should always be taken with a pinch of salt and silver’s value is as financial insurance and a store of wealth that cannot be debased and cannot go bankrupt.

(Bloomberg) -- Silver Below $32 May Attract ‘Bargain Hunters,’ Commerzbank Says
Silver prices below $32 an ounce should attract “bargain hunters,” Commerzbank AG said in a report e-mailed today.

“The hybrid character of silver – store of value and participating in an economic upswing due to its mainly industrial use – should mean that this precious metal remains attractive and in demand,” the bank said.

Silver traded at $31.79 an ounce by 9:43 a.m. in London.

Silver in USD 1971 – 2012 (Bloomberg Inflation Adjusted Index)

(Bloomberg) -- Gold May Fall Below $1,600 Before Rebounding, Commerzbank Says
Gold may have a “temporary” decline to below $1,600 an ounce before rebounding to $1,900 by the end of the year, Commerzbank AG said in a report e-mailed today.

“In the short term, gold could come under further pressure as a result of the high correlation with the risky asset classes,” analysts at the bank wrote. “Concerns about inflation and the high level of interest from the central banks could help gold to move back towards its all-time peak.”

(Bloomberg) -- Sudan May Double Gold Exports to 50 Tons This Year, Sahafa Says
Sudan may more than double gold exports to 50 metric tons in 2012 from 24 tons last year, al- Sahafa reported, citing Mostafa al-Bakry, head of the gold department at the country’s central bank.

Earnings from shipments of the metal may jump to $2.4 billion from $1.2 billion, the Khartoum-based newspaper said. The North African country produced 14 tons of gold in the first quarter, it said

(Bloomberg) -- China Regrets U.S. Report That Claims It Stole Space Technology,
China regrets a U.S. government report that accused it of stealing military and civilian space technology, and opposes the charges contained in the document, Foreign Ministry spokesman Liu Weimin said today.

“China’s aeronautical achievement is China’s own innovation and enterprise,” Liu said in Beijing. “Any restriction, opposition and defamation are futile.”

The report, released by the State and Defense Departments on April 18, accused China of stealing the technology in efforts to disrupt U.S. access to intelligence, navigation and communication satellites.

(Bloomberg) -- Top U.S. Pacific Commander Should Mind His Words on Korea: China’s Liu
Adm. Samuel J. Locklear, the top American military commander in the Pacific, should mind his words and actions and avoid fanning tensions on the Korean peninsula, Chinese Foreign Ministry spokesman Liu Weimin said.

“Relevant parties should mind their words and actions and should not increase tension in the region,” Liu said today in Beijing. He spoke after Locklear told reporters on April 17 in Seoul that the U.S.-South Korea alliance is “continually looking at all options” in responding to a possible North Korean nuclear test.

(PTI) -- Silver surges on heavy speculative and industrial offtake, gold moves up
Silver prices hardened further at the domestic bullion market on heavy speculative buying by investors on the back of rising industrial demand.

Gold moved up on stray demand from stockist as well as jewellers.

Silver ready (.999 fineness) climbed by Rs 200 per kg to end at Rs 56,725 from Wednesday's closing level of Rs 56,525. Standard gold (99.5 purity) gained by Rs 10 per 10 grams to Rs 28,470 from Rs 28,460.

Pure gold (99.9 purity) also edged up by a similar margin to finish at Rs 28,625 per 10 grams from Rs 28,615.

In New York, gold finished lower on lack of physical demand tracking losses in broader market.

Gold of June delivery declined by USD 11.50 to USD 1,639.60 an ounce on the Comex division of NYMEX late yesterday.

(Bloomberg) -- iShares Silver Trust Holdings Dropped 45.29 Tons Yesterday
Silver holdings in the iShares Silver Trust, the biggest exchange-traded fund backed by silver, fell 45.29 metric tons yesterday to 9,591.40 tons, according to figures on the company’s website.

(Bloomberg) -- Silver Demand Fell 3.2% Last Year Amid EU Debt Crisis, GFMS Says
Silver demand in 2011 fell for the first time in three years as the sovereign-debt crisis in Europe crimped industrial use, Thomson Reuters GFMS Ltd. said.

Total demand fell 3.2 percent to 1.04 billion ounces, the first decline since 2008, with usage declines in industrial applications, photography, jewelry and silverware, GFMS said in a report published today by the Washington-based Silver Institute. Industrial consumption slipped 2.7 percent to 486.5 million ounces, GFMS said.

Silver prices in London surged as much as 61 percent in 2011 through April 25, reaching a record $49.80 an ounce. The metal then slumped 44 percent to $27.84 by the end of the year. The retreat was fueled by investors who sold silver and gold to raise cash amid concern that a global financial crisis would worsen as China’s economy slowed.

“The speed and scale of the decline in price made a lot of people think twice about the wisdom of investing in silver,” Philip Klapwijk, the global head of metal analytics at GFMS, said in a telephone interview before the report was released. “The volatility that we saw last year translated into caution on the part of investors.”

Prices averaged $35.12 last year, and will remain around that level this year, Klapwijk said. Silver for immediate delivery traded at $31.63 at 4:45 p.m. New York time yesterday.

“We are unlikely to see any firepower from investors this year to push it much higher,” he said. “Last year was exceptional in terms of commitment to silver.”

Gold treads water; euro zone worry, US data weigh - Reuters

Investors seek safety as euro zone debt worries grow - Reuters

Most European Stocks Fall Before German Confidence Report - Bloomberg

Europe Urged to Fix Crisis as G-20 Warns of More Stress - Bloomberg

Blanch Says U.S. Fiscal Woes Will Push Up Gold - Bloomberg

Leeb: QE3 Is Now 80% - 90% & I’m Going All-In Gold If It Dips – King World News

Lombardi: An Insatiable Appetite for Gold – Profit Confidential

Sprott On Biderman On Paper Vs Physical Gold – Zero Hedge

Utah Now Accepts Gold and Silver – Inside Futures

For breaking news and commentary on financial markets and gold, follow us on Twitter.

Mark O’Byrne




Data and Statistics for these countries : China | France | Iran | Russia | South Korea | Spain | Sudan | Syria | All
Gold and Silver Prices for these countries : China | France | Iran | Russia | South Korea | Spain | Sudan | Syria | All
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Mark O'Byrne is executive and research director of which he founded in 2003. GoldCore have become one of the leading gold brokers in the world and have over 4,000 clients in over 40 countries and with over $200 million in assets under management and storage.We offer mass affluent, HNW, UHNW and institutional investors including family offices, gold, silver, platinum and palladium bullion in London, Zurich, Singapore, Hong Kong, Dubai and Perth.
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