Capacity Utilization Update And Why It's Good For Gold And Silver

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 |  Includes: PHYS, PSLV
by: Katchum

As a follow up on my previous post on the Capacity Utilization Rate, I am publishing this update. Capacity Utilization in March was 78.6% for the total industry, which is 0.1% lower than the previous month (Chart 1). I expected a bigger decline, and was surprised that it fell so little. There is a good chance that it will go up in the future as industrial production in March 2012 was unchanged. This is positive for gold going forward.

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Chart 1: Capacity Utilization Rate

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The good news is that capacity utilization for mining and utilities went up to 87.5% and 73.1% respectively. For the mining industry, this is good news. The utilities even went up 1% point (previously 72.2%).

Also, something interesting happened in the gold market (Chart 2) after the IMF raised its growth forecasts. World economic growth will be 3.5% this year. At first, the gold price plunged on optimism, but reality is that this will be very inflationary. That's why the gold price went back up.

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Chart 2: Gold vigilante

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Of course this economic news is very good for silver. The silver price was less affected by this news from the IMF (Chart 3).

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Chart 3: Silver price is steady

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Meanwhile, the gold and silver premium rates are at multi year lows for the Sprott Physical Gold and Silver trust (PHYS), (PSLV) (Chart 4, 5). PSLV's premium is 4.94% and PHYS's premium is 2.28%.

It would be a good idea to buy in these gold and silver trusts now, as premiums are poised to go up in time.

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Chart 4: PSLV Premium (%) (blue) VS Price (USD) (orange)

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Chart 5: PHYS Premium (%) (blue) VS Price (orange)

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Disclosure: I am long PHYS, PSLV.