Silver Versus Gold

Gold is on a tear and all of the signs point to it continuing.  The question today is : How do the chips fall with silver versus gold?  The answer might surprise you.  I will take a look at both today as I delve into the complex relationship that is silver versus gold in this current market environment.

For those of you that are frequent visitors to buygoldco.com,  you know that I love  to check out Jon Nadler’s skeptical articles on the strength of gold’s latest run and get a hint of where  “Mr. Negative Gold“  thinks the price of gold is headed.  As you might suspect, he invariably comes up with  reasons why gold should not be at its  current level and gives his theory on why it should head down shortly, which usually revolves around falling jewelry sales around the globe.

That is why I am so excited to bring you this next video!.  It is not by any means an endorsement of this latest run up in gold, but at least for once he called for a higher gold price.   Mr. Negative Gold himself, Jon Nadler predicts $1,150 gold!

Be still my beating heart, even Jon Nadler sees some legs developing under that old “barbaric relic”.

U.S. gold hits record high US$1,151/oz after CPI data

Reuters Published: Wednesday, November 18, 2009

NEW YORK — Gold futures rose to record high of US$1,151 an ounce Wednesday, as stronger-than-expected U.S. consumer prices stirred inflation worries.

U.S. December gold futures were up US$10.20 at US$1,149.60 an ounce at 9:17 a.m. EST (1417 GMT) on the COMEX division of NYMEX. Just minutes earlier, it scaled an all-time high US$1,151 an ounce.

Well, while I don’t like to pile on, congratulations to Jon for seeing the light at the end of the tunnel before the the train hit him head on.  The World Gold Council reported Thursday that gold demand for the 3rd  quarter reached 800.3 metric tons, or $24.7 billion in dollars, up 15% from the second quarter.  Oddly enough, demand for exchange traded gold dipped, while jewelry, industrial and investor demand rose.  Investor demand is fueling this current rise in the price of gold!

Make no mistake about it, jewelry is now an after thought!  Investors driven by fear of a currency crisis and global central banks driven by the knowledge that the currency crisis is real, are loading up on physical gold bullion.  Russia, China and India are not “tilting at windmills”, rather, they are trying to preserve as much wealth as they can by their purchases of gold.  The writing is on the wall and it does not tell a happy tale for the U.S. dollar.

I will not go as far as to say that there can be no good resolution to the dollar’s ills, but the chances of dodging this bullet become slimmer with each passing day.  The “stimulus package”(if the slush fund is completely spent), the Health Care Bill, and Cap and Trade (if passed) will signal the end of the dollar as the world’s reserve currency!  Make no mistake about it, this is all about “change”, to borrow a phrase from the “Community Activist in Chief”.

I would pay particular attention to any pullbacks in the price of gold, because I believe that they will be short lived.  Pullbacks are the time to increase in shares of gold miners, gold royalty companies and gold bullion and coins.

Gold investor demand tells it all and this next story speaks directly to that point.

U.K. Royal Mint Quadruples Production of Gold Coins

By Thomas Biesheuvel and Nicholas Larkin

Nov. 19 (Bloomberg) — The U.K.s Royal Mint, established in the 13th century, more than quadrupled production of gold coins in the third quarter after demand for the metal increased as investors sought to hedge against a weakening dollar.

Output rose to 32,735.8 ounces from 7,500.2 ounces a year before, according to data obtained by Bloomberg News under a Freedom of Information Act request. Production in the first nine months more than tripled to 100,391.3 ounces, the data show.

Gold is set for a ninth annual gain as countries have cut interest rates to near zero percent and spent $2 trillion to pull the global economy out of the worst recession since World War II. The metal reached a record in London yesterday and has gained about 29 percent this year, while the dollar has dropped 7.3 percent against a basket of six currencies.

Theres still a total lack of confidence in the financial system, David Russell, a director at Dublin-based brokerage and bullion dealer GoldCore Ltd., said in an interview. Investors are seeing the benefits of diversifying into gold. Smaller investors are clued into the fact that inflation possibilities are a worry for the future.

Sales of American Eagle gold coins by the U.S. Mint more than doubled in the first nine months to 954,000 ounces, its we site showed. Harrods Ltd., the London department store, began selling gold bars and coins for the first time in October.

Tangible Asset

Global gold demand climbed 10 percent in the third quarter to 800.3 metric tons from the previous three months after investors bought the metal as a currency hedge and jewelry purchases picked up, the World Gold Council said today.

Bullion fell for the first time in five days in London after reaching $1,152 an ounce yesterday. Gold for immediate delivery declined $10.50, or 0.9 percent, to $1,135 by 2:56 p.m. local time. A ninth annual gain would be the longest winning streak since at least 1948.

Muenze Oesterreich AG, the Austrian mint thats the worlds largest marketer of pure gold coins, sold 1.9 million ounces of gold so far in 2009, its President Kurt Meyer said last month. That was 23 percent more than last year’s total sales, he said.

Its a tangible asset, and its value can be quickly and easily realized,” Russell said. Were seeing very good demand in the coin market. Many investors are aware that theyve been poorly diversified over the past few years.

ETF Investment

Bullion holdings in some exchange-traded funds have risen to records in recent months. India last month bought 200 metric tons, followed by a smaller purchase by Mauritius. Analysts at Bank of America Merrill Lynch, Societe Generale SA and Barclays Capital have forecast further purchases by central banks.

The U.K. mint moved to Llantrisant in Wales from Londons Tower Hill in 1968, three years before Britain switched to a decimal currency system. It makes coins including the 22-carat 2010 Gold Proof Sovereign, weighing 7.99 grams (0.26 ounce) and costing 299 pounds ($500), the state agencys Web site shows.

The mints use of silver rose 56 percent from a year earlier to 94,343.3 ounces in the third quarter, the figures show. Production in the first nine months increased 31 percent to 270,382.6 ounces.

(The bold type was my addition, just for emphasis.)

It always seems that we learn more about what is really going on in the world from “the other side of the pond”. I guess when you have lived under socialism for a prolonged period, it is easier to cut through the crap!

Silver Versus Gold!

There are a couple of things that I need to point out in order to properly ground this discussion.  I would hope that some of you will join in and give me your comments on the subject and I will answer them in kind.  First I think it is necessary to make sure that this latest move in gold is “the real thing”.

Gold is now outside of the trading range and this weeks patterns show a lot of strength. The RSI is above 70, but is leveled out and looks like it can maintain this level for an extended period of time, if not rise higher!  The most important thing that we saw this week was that gold ran contrary to the the price of the dollar.  Gold was beaten down during the daily sessions as the dollar rose and then countered the dollar rise with one of its own.  Thursday was a prime example.

Friday was no different.

Gold is becoming money as I have often spoke of in the past.  This is the first change that signals a long path for this gold bull to follow. The gold bull is real, now how do I see silver?

Silver Should Outperform Gold in the Near Future!

Silver is currently selling for $18.50 per ounce which may prove to be the biggest bargain of the next five years!  Silver has lagged behind gold, but due to the strength of the gold run, it should be making up time shortly.  A quick run to between $30 and $40 per ounce is in the cards for silver and it is coming shortly and by that I mean in 2010.  Now is the time to back up the truck and acquire both silver coins and bullion and silver miners.

On the miner side I like Pan American Silver Corp (PAAS),  Silver Standard Resources (SSRI), Silver Wheaton Corp (SLW) and Silver Corp Metals (SVM).  All of these should be considered on any pullbacks in price, after you have done your due diligence.  The upside in silver is huge at this point.

Unless there is a drastic change in government policy, which is not likely, silver will start to out perform gold shortly.  If we pick a middle of the road estimate for gold in the next five years of say $2,600 per ounce, which is above the low end and way off some of the high end predictions, you will begin to see my point. For gold to go from$1,150 to $2,600 is an increase of roughly 110%.  Do the math on silver going from $18.50 to $160, which is what it will trade at when gold is at $2,600, and you will see what  I am talking about.

Silver will make the same transition that gold is making: namely the transition from a commodity to money.  It will become a life preserver of wealth.  Preservation of wealth is truly an equal opportunity for all.  You can do it if your rich with gold and you can do it with modest means with silver.  It is time to realize that your government is not here to help you, but rather to bury you! Protect your family and yourself by acquiring real assets that preserve wealth.

Till next time, good luck and good trading!

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• Buy Gold on Dips

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