What pity silver is so unreliable! Gold’s price is reaching heights not seen for years, but will silver follow? Who knows! It might but now it is lagging
Silver is on the up — but how high will it go? Given its unpredictability, there is a strong temptation to look at old ‘lore’. Silver’s future for centuries was predicted by its relationship to gold. Silver’s price, according to the American Geological Institute, was traditionally around a sixteenth of gold. The reason? Gold is about 16 times rarer. However, is US$45 an ounce plausible, when the best near-term industry forecasts are for US$15?
Silver is an older store of wealth than gold, but it has been friendless for years. Silver’s problem is that it is useful. Therefore, demand/supply balance sums include estimates of how much will be bought by this or that industry. If a major buyer goes, such as the 25% market share taken by photography, there are problems. Indeed, in the last few years digital photography has taken over from the silver-halide film process.
Silver has become uncomfortably volatile, after 200 flat years to the 1970s. Then it started to recover from US25 cents an ounce. The buccaneering Texan Hunt brothers then decided to corner the market. They pushed the price up to US$52.5 in 1980.
The brothers made a fatal flaw – they forgot about the bottomless store of silver jewellery in India. It poured in to the market to chase profits. Pretty rapidly silver dropped to a few dollars an ounce. Warren Buffett also had a go. In the late ‘90s, he bought millions of ounces at US$4.40. He reckoned that supply was not catching up with demand. His action alone put 50% on the price. He sold out and has never gone back.
From 1993 to late 2003, silver ranged from US$4.00 to US$5.50 an ounce. Amazingly, the market was supposed to be in deficit — supply from mines and scrap was less than demand for jewellery and industry. Anecdotal evidence suggested it was attracting investors. So, why didn’t the price rise? The Silver Book, a study out this summer from analysts VM Group, came up with the answer -there was more silver around than people realised. Recycling from photography had been more efficient than thought. As India got richer, they upgraded to gold jewellery — selling the family silver and investors were probably not as active as the rumours suggested.
Since late 2003, silver prices have moved up. Last year was brilliant for silver. Its average price increased 58% on 2005 to US$11.61 per ounce. In addition, there was little increase in silver arriving at markets from mines, central banks or recycling. Bullish sentiment kept on going in 2007’s first half, in which the price averaged US$13.75.
The question is — where now? It comes as mining production is forecast to rise 3% this year to record levels. Fortunately, central banks are not expected to unload more from their vaults. The Reserve Bank of India, for one, is clean out. However, it does have a few million ounces confiscated from smugglers to sell.
Photography is a declining market, and there is less silver coinage, but there are other new industrial users. Small now, but they are growing. Not widely known is that silver is a biocide — good at killing bacteria. It is used in swimming pool treatments, in hospitals and spas. Other customers are those who want to keep products clean. They include motor companies who use it in the plastic for car interiors. Silver is also a good heat conductor, and it holds antistatic and other properties. Over 24,000 silver-coated quartz tiles protected NASA's Magellan spacecraft from overheating and radiation as it orbited the earth.Jewellery — ‘fabricating’ in the trade — is an important product for silver.
However, silver’s future lies with fashion. As, consultant analysts GFMS says, designers’ edicts be they in New York, Paris, Beijing or Mumbai will be what counts. The mining analyst believes that the return of Indian buying is critical. Also of importance are the rise of the ‘metrosexual’ male as a jewellery consumer and the popularity of expensive fashion brands. Many key investors really seem to like silver. Some of gold’s safe haven attraction has rubbed off in these financially unstable times. Last year for the first time in ages, investors bought more silver than they sold. Investment choice is widening. More mining companies are highlighting their silver production now the price has gone up. There are exchange-traded funds, mutual funds, options, certificates, bars, even broker buying plans.
What are your thoughts regarding silver?
Source: Virtual Metals
Whilst every effort has been made to ensure the accuracy of the information in this document, Amante Jewellery cannot guarantee such accuracy. Furthermore, the material contained herewith has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient or organisation. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any commodities, securities or related financial instruments. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. Amante Jewellery does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this document.
Monday, June 16, 2008
June 2008 Gold Update
The first quarter of 2008 saw gold in a bullish mood, as it charged past the previous record of $850 in 1980 to achieve an all-time high of $1,011.25 on 17th March. An abrupt correction left the end-quarter price at $933.50 but the overall average quarter price was also a record, at $924.83. In contrast to the fourth quarter, when gold prices in other currencies did not keep pace in percentage terms with the dollar price, gold prices in other currencies typically saw notable increases in the first quarter. The rupee price rose by 18% quarter-on-quarter, mirroring the US dollar percentage increase, whilst the rand price surged by 31%.
The increase in the gold price was primarily due to the sustained inflow of investor funds, as investors turned to gold as a safe haven. There were a combination of factors behind this move to perceived safer ground, not least of which were the heavy losses reported by major banks, and the collapse of Wall Street giant Bear Stearns. In addition, the fact that the greenback dropped to a record low against the euro, and oil and food prices continued to escalate, further helped to turn investors towards the yellow metal. It also remained an attractive investment against a potential slump in equity values in the event of a slowdown of the US economy; some spectators suggest that a recession in the United States had already started.
Where do you see gold going?
Source: Societe Generale and GFMS Ltd
Whilst every effort has been made to ensure the accuracy of the information in this document, Amante Jewellery cannot guarantee such accuracy. Furthermore, the material contained herewith has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient or organisation. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any commodities, securities or related financial instruments. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. Amante Jewellery does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this document.
The increase in the gold price was primarily due to the sustained inflow of investor funds, as investors turned to gold as a safe haven. There were a combination of factors behind this move to perceived safer ground, not least of which were the heavy losses reported by major banks, and the collapse of Wall Street giant Bear Stearns. In addition, the fact that the greenback dropped to a record low against the euro, and oil and food prices continued to escalate, further helped to turn investors towards the yellow metal. It also remained an attractive investment against a potential slump in equity values in the event of a slowdown of the US economy; some spectators suggest that a recession in the United States had already started.
Where do you see gold going?
Source: Societe Generale and GFMS Ltd
Whilst every effort has been made to ensure the accuracy of the information in this document, Amante Jewellery cannot guarantee such accuracy. Furthermore, the material contained herewith has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient or organisation. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any commodities, securities or related financial instruments. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. Amante Jewellery does not accept responsibility for any losses or damages arising directly, or indirectly, from the use of this document.
Wednesday, May 28, 2008
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