The Bullion Report on December 22: Buoyed by Investors

One of the largest growth areas for gold demand over the last few years has been investment demand. The drive for the apparent “haven” of precious metals during tumultuous times has bolstered this interest. As governments and officials look towards the potential recovery, this latest wave of precious metal fever seems unlikely to pass any time soon.

Now, investment demand for physical metals is specifically referring to the segment of demand that involves acquisitions solely for investment. This excludes any kind of global interest in jewelry, which is both ornamental and investment driven at various times. That kind of interest in precious metals is a topic unto itself. Physical sales, coin sales, ETFs, and other precious metals based buy-and-sell vehicles are the main focus.

This kind of investment demand for gold has been closely tracked by the World Gold Council. In its latest news releases, WGC reviewed the third-quarter gold demand in 2010. Although the investment desire for gold dipped from the second quarter of 2010, it was still 19 percent growth from the year prior. Profit taking and other outflows followed price changes in gold, but buyers still sought the potential opportunities in metals markets. Physical gold product demand was noted as a “phenomenon” while official coin investments were around 2 percent higher year-on-year.

Gold is not alone on this apparent investment pedestal. Silver bullion sales have also been recorded as robust. The sales of silver coins from the U.S. Mint were particularly strong, and the new 5 oz coins from the same source could prove popular.  The Wall Street Journal even noted that “some dealers were reportedly being offered ‘double spot value,’” for the America the Beautiful bullion coins. (1)

Higher prices are an obvious catalyst for investor attentions, but they can serve as a double-edged sword. On one hand, the fact that precious metals have broken to new heights can garner attention, bringing some people into the fold who would otherwise have not invested in precious metals. The excitement that can build in these markets ahead of price milestones can be alluring. On the other hand, there is an obvious mental barrier for some people when it begins to look like prices cannot possibly move higher. Profit taking often occurs at those levels, but any subsequent sale can turn things around. As the prices drop when investors take profits, there seem to be a number of willing buyers on any dip.

According to many dealers in India, this is definitely a reality. An article from Reuters suggests that there is an “underlying appetite” that can fuel interest on any drop in gold prices. (2) But what is it about the current climate that can buoy investment demand which, in turn, has been bolstering the market?

The fundamentals behind investor interest in gold and silver markets remain much the same now as they have been for the last several months. The fear factor behind the global economic crisis can drive prices and lure fresh interest to the markets. The economic and credit issues do not appear completely resolved and that has definitely impacted the average investor. More importantly, there seems to be a long term shift in the way people look at the overall markets.

Other markets and even entire countries seem to have been laid bare for all the flaws and potential weaknesses. Sure, precious metals have a couple of issues as well. The prices could go down at any time under certain pressures or market fundamentals. Volatility does exist in bullion markets. However, gold and silver are not reliant on seasons or monetary policies. They cannot be manipulated in an easy fashion (though charges of market manipulation are not unheard of), and it seems unlikely that any massive discoveries are around the corner which could shift the supply dynamic and mining trends.

From the macro side of investor thinking, the potential for a collapse of individual or whole economies is still not outside the realm of possibility. Downgrading of certain nations marches on. Printing of money in an effort to maintain or spark economic growth is seen as a real threat to certain currencies.

Summary

Investment demand summarized by the World Gold Council may have tapered from the impressive levels set earlier this year. This doesn’t mean that investors are leaving en masse. On the contrary, there appears to be a real trend, especially among western cultures, towards maintaining precious metals holdings even through price dips. As the end of the year approaches, it will be interesting to see just how far this growth in investment demand has come to wrapping up this quarter. Amid another round of quantitative easing, it seems likely that investors are ready to step into gold and silver, drawn by a universal and historic appeal for all that glitters.

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We invite, then, the world to come with its silver and make the exchange. Richard Parks Bland 1 http://online.wsj.com/article/SB20001424052748704156304576003931976247962.html
2 http://in.reuters.com/article/idINIndia-53732020101222

The Bullion Report: Metals as Money

It has been about a month now since the World Bank chief found a way to work gold into his comments for the Financial Times. His words, no matter how they were originally directed, added to the revival of mainstream discussions over the gold standard. Central banks are likely nowhere near that kind of conclusion, but the strong feelings some people have towards precious metals as currency are likely not taking a back seat any time soon. What is it about gold and silver that beckons such debate in the first place?


Past performance is not indicative of future results.
***chart courtesy Gecko Softwareís Track ní Trade Pro


Past performance is not indicative of future results.
***chart courtesy Gecko Softwareís Track ní Trade Pro

The first answer to that question is usually the idea that gold and silver occur in such rarity that there will always be an intrinsic demand for that which is harder to come by. This is the supply and demand argument at its root. Supply includes the visible and quantifiable amount of precious metals that is held by investors and banks. It also includes identifiable jewelry and industrial applications. The potential underground resources in areas where metals are mined are also observed as part of the overall estimated supply. These “yet-to-be-mined” metals present a bit of a challenge. After all, there are significant input costs related to mining, but the general picture of potential metals for investment and manufacture include these estimated values as well. If demand keeps ratcheting up over time, this finite value of precious metals has to be spread among more participants. This would essentially lead to a higher price if the number of buyers outpaces the number of sellers.

On that demand side, the answer to using metals as money can be a little more esoteric. To the critic, gold has limited desirability. Some infamous investors have even gone on record making statements that point out higher values to be found in farmland or oil. They suggest that gold and silver are just metal. They have no function beyond that which imagination imbues in them. However, therein lies the answer. Apparently, there remains a strong drive to possess gold and silver. Gold may not represent a food value or potential energy source. The fans of bullion point out things that are possible with gold – and even silver to certain extent – that are not found in other financial instruments.

Gold does not easily tarnish or rot away. It doesn’t change with the seasons or get consumed while performing its function. Precious metals have history. They have been used as a store of wealth for millennia. There is an inherent difficulty in manipulating or devaluing precious metals, unlike currencies. To the fan of a gold or bimetal standard, it appears easier for a central bank to change policies in the short-term to print more money. Making more gold or silver would more often involve an investment in mining or a gold discovery the scope of which might need to match the Comstock Lode or other significant ore deposit. Again, critics of gold may suggest that the instability created by central bank sales shows an inherent weakness in gold values. However, the likelihood of sales of such magnitude from banks might be eroded by the requirement to back paper currencies with actual, physical gold.

Gold and silver were used as exchange mediums for centuries. They held places of esteem in many civilizations. Gold and silver coins and jewelry are easy to mold into convenient sizes to transport. When agreed upon values exist, precious metals represent something familiar to most modern societies.  Unlike other financial vehicles, there are very few inherent weaknesses to precious metals like there are for a nation’s currency. They do not rely on performance figures or economic policies. They are just physical gold or silver. Even though attempts have been made historically to alloy or plate coins to pass them off as bullion for illicit gain, it is harder than it sounds to manipulate an investment that way. On the other hand, even rogue comments by central bank members can have significant impact – even temporarily – on overall markets.

Summary

It is likely impossible to divorce the world economy from the current monetary system. There are several schools of thought that argue against precious metals being used in any format that suggests anything other than dabbling in investment or industrial enterprise. These arguments are not likely to silence the call for reform any time soon. The real issue at hand appears to be the possibility of inflation stemming from the central bank and policy changes. Consumers are growing increasingly alert and aware of the potential for manipulation and the overall global impact. Gold and silver coins are hard to counterfeit. Crooked bullion or sales policies are more difficult to sweep under the rug. The impact of a dilution of a gold coin by alloying it with another metal is immediate. The shift in monetary policy or an accrual of debt by a nation may have an effect that many modern investors believe can ripple on for years. The trick to a “return to gold” would lie in a re-education that might be a harder undertaking than people imagine. Unless there is a complete collapse of a specific international trade, precious metals will probably remain an alternative to paper money, instead of a backing for it.

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Gold and iron are good
To buy iron and gold.

RALPH WALDO EMERSON, Politics

The Metals Review for December 6th, 2010

Precious metals had a huge week as Gold soared above $1,400 once again and Silver rallied to $30. These markets have risen very nicely since the dip to $1,320.  Investors and traders alike appear to be flocking to precious metals as this has been one of the great sectors this year, and probably the last 10 years for that matter.  Gold and Silver could offer long opportunities on dips but pay attention to the technical level of $1,427 as this could be good resistance of the last move’s high.

Copper also had a tremendous week even as non-farm payrolls came in weaker than expected as February Copper rallied to $4.00 and gained 25 cents in just one week alone.  Look for $4.05 to be good resistance and for this market to make it back to $3.90- $3.85.