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Can Silver Count On Gold? 37 comments
Tue, Nov 10, 2009
Featured Articles, Silver Articles, Uncategorized
By Melissa Pistilli-Exclusive to Silver Investing News
Gold is riding high on dollar weakness, increased risk appetite and inflation fears bringing its price per ounce above $1,100. Silver has come along for the ride, but hasn’t managed to hold a break over the $18 level. Concerns over sluggish industrial demand for base metals in general have hampered silver’s gains.
As we wait for confidence in the economic recovery and commodities demand to pick up, can the silver price count on the gold market?
Some analysts, like those at Goldcore.com, believe the $1,000 price level for the yellow metal is “sustainable” over the long term and that silver is still way undervalued versus gold and bound to catch up.
Others are confident that gold has much farther to go and rest their assertions on the possibility that the quantitative easing methods employed by central banks across the world will lead to exorbitant inflation sending the gold price through the roof. In which case, precious metal silver is expected to go along for the ride.
However, there are those who argue against this scenario and don’t see gold prices making any larger gains. Kitco’s senior metals market analyst Jon Nadler explored this debate over gold’s price direction and fundamentals in two recent articles. (November 4 and November 9)
Here’s what some analysts had to say on the issue:
HSBC analyst James Steel sees strong fundamentals for gold for the next 12 months. “Although we’re not in the inflation camp, we do believe that quantitative easing will have a sufficiently stimulative effect to boost commodity prices globally and weaken the dollar, which would further reinforce gold prices,” said Steel.
“(The forecast) presupposes that we are going to see significant dollar weakness, and that inflation concerns will grow significantly,” said Philip Klapwijk, chairman of metal consultancy GFMS. “If the market were to go to those levels, it would face major obstacles along the way in terms of other elements of supply and demand — particularly in terms of scrap, and jewellery demand.”
“I believe there are two real drivers behind the gold price: the fear trade versus the US dollar, and the potential for inflation,” said Blackmont Metals and Mining Analyst Richard Gray in a recent interview with The Gold Report. “Given what we’ve seen over the course of 2009, investors are looking for an alternative investment to the dollar.”
When asked about the probability of inflation once recovery begins, Gray said he can see both sides of the argument. “With all the stimulus money that’s been injected into the system, it would seem inevitable that inflation will be an issue down the road,” he said. “On the other hand, you could also argue that all the value that was destroyed (particularly in the last 12 months), won’t be regained by all the stimulus money in the world. That’s the argument for people who say inflation’s never going to be an issue because the stimulus money isn’t anywhere near what was lost in the last 12 months.”
Gray isn’t one of those gold bugs prophesying $2,000 an ounce gold, either. “Personally, what I’ve been telling clients is that gold around $1,000 is probably a reasonable place to be looking long term . . . I think the upside scenario is maybe $1,100 or $1,200.”
And then there’s the “fight” between respected economist Nouriel Roubini and investor guru Jim Rogers.
Rogers believes the yellow metal is on its way to hitting $2,000 an ounce. “The old high, back in 1980 adjusted for inflation, would be over $2,000 now, just to get back to the old high. So we’ll certainly get there some time in the next decade.”
Roubini, who is credited with predicting the 2008 housing market collapse and economic crisis two years prior, has called Rogers’ assertion “utter nonsense.” Deflation worries Roubini more as governments look for the door on their recent measures to prop up their financial institutions.
The NYU professor has argued that investors are using borrowed funds to purchase stocks and commodities, inflating their value. Eventually, he believes, this bubble will pop deflating gold and other commodities prices.
Rogers disagrees. “What bubble? It’s clear Mr Roubini hasn’t done his homework, yet again.” He points to the nearly 50 per cent drop in Chinese stocks and commodities like sugar, silver and coffee.
So, will the gold market continue to buoy silver prices? Only time will tell.
But don’t forget silver’s other face. New industrial applications for silver and economic recovery, despite its present fits and starts, will continue to boost physical demand.
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This post has 37 comments:
On Nov 11 07:24 PM Speedspirit wrote:
> Thanks optionsgirl was looking for info on silver miners. It seems
> the best of breed have already risen to the overbought condition
> so I will wait for a pullback and load up the boat. We should get
> a pullback anyday from the looks of things. The cartel doesnt want
> to lose control just yet.
SSRI - I like this pick, its on my "buy" list in case of a correction. I would love to pick some up cheap. I think they need to get Pirquitas up to speed, and get moving with the Minco Silver connection.
EXK - I like this one too. And this one is the "right size" with a market cap just under $170million - per the idea Maya put forth elsewhere to move into junior mines just BEFORE they grow into the $200million+ range where GDXJ will be adding them to its list. EXK has also increased production and cut costs (a lot).
PAAS is one I know from a while back. I owned them for a while. I find their entanglement with Russian silver (Dukat) and Polimetall a bit convoluted. Their original 70% share before all the heavy handed Russian maneuvering has been cut down to size, I see, but it is still considerable (though complex). With Russian bureaucracy involved so heavily in the sale of precious metals, well, its just not an advantage imo.
The PK stocks are new to me, and I will look them over to see what is what.
OG, I have been in and out of CDE several times over the years. What do you think of them right now? They have great numbers, but keep getting tangled up in extraneous stuff that costs them money and delays...
On Nov 11 11:08 PM optionsgirl wrote:
> Don't forget Hecla Mining (HL).
Here is a great article on gold and top tier gold miners and their issues:
www.mineweb.com/minewe...#
The Shiniest Catch in Silver
By Christopher Barker
November 6, 2009 | Comments (11)
Recs
15
CDE
Coeur d'Alene Mi
Rate CDE
CAPS Rating 3/5 Stars
Up $22.20 $0.59 (2.73%)
More about CDE
To borrow a phrase from fishing folk: this is why they call it mining, and not producing. Mining for metals is an unforgiving challenge, but miners chase their quarry like fishermen in pursuit of the perfect haul.
Coeur d'Alene Mines (NYSE: CDE) turned in the kind of quarter that could inspire sea shanties. The miner once again topped its own record for quarterly revenue, reeling in $89.8 million for a 146% increase over prior-year levels. Silver production increased 86% to 5.2 million ounces -- alongside a 222% surge in gold volumes -- as the Palmarejo mine in Mexico continued to ramp up toward design capacity. Palmarejo's silver output increased an incredible 117% sequentially over strong second-quarter production.
Meanwhile, the biggest catch of Coeur's season is the 40% expansion of Palmarejo's mineral wealth, achieved through exploration of the nearby Guadalupe deposit. The upgrade brings proven and probable reserves to 88.6 million ounces of silver and 1.1 million ounces of gold, and substantially enhances life-of-mine cash flow expectations. At $8.76 per ounce, costs remain high, but by 2010 each ounce of silver could cost as little as $1.50 to mine as annual production reaches 9 million ounces. Each deck hand will receive ... oh wait, wrong show. This is the shiniest catch.
What's the catch?
Celebrations for fishermen are short-lived, as thoughts quickly return to all that can potentially go wrong. Precious metal investors are similarly aware that operational snags like those reported by Kinross Gold (NYSE: KGC) and Agnico-Eagle Mines (NYSE: AEM) can strike at any time. The Bolivian government's move to cease mining on that portion of San Bartolome that lies above 4,400 meters of elevation -- reportedly relating to stability concerns in underground works mined by other parties -- forced the company to reduce fourth quarter production guidance by 500,000 silver ounces.
Also, while rival Hecla Mining (NYSE: HL) turned in a profitable quarter on the strength of very low cash costs of $0.85 per ounce, Coeur recorded a $17.3 million loss as the company works through royalties and lease agreements initiated during the company's darkest hour.
The shiniest catch in silver?
Despite the San Bartolome glitch and quarterly loss, I consider Coeur d'Alene Mines a serious silver standout. Hecla has the upper hand in operating costs, Pan American Silver (Nasdaq: PAAS) boasts a pending acquisition, and Silvercorp Metals' (NYSE: SVM) just moved to the illustrious big board. The competition is fierce, but I view Silver Wheaton (NYSE: SLW) as the undisputed star of the silver screen. Which silver producer do you consider the shiniest catch? Please vote in our Motley Poll and share your views in the comments section below. You won't hurt my feelings ... I own them all.
Mention of CDE and Bolivia together has me heading for the exit, and CDE of course has been struggling with high production costs even though they are promising a big drop (for over $8 per ounce to around $1), I just don't trust the guy running Bolivia (Chavez junior)...
www.fool.com/investing...
Thanks.
Tripleblack the comment you made about Mayas idea to buy prior to size getting them into juniors index seems very intuitive. I think that's a smart idea. Sorry I missed the comment. I have not been keeping up very good lately. Missing a LOT of the comments. Hope none were directed at me. I have not seen any.
On Nov 13 08:57 AM optionsgirl wrote:
> expect smack down? seekingalpha.com/artic...
On Nov 16 01:18 PM tripleblack wrote:
> I am trying to wrap my head around the idea that China might move
> into silver soon in a big way, importing a big lump along with more
> copper...
www.mineweb.com/minewe...
Latest rumor has it that GLD's vaults are stuffed with them.
On Nov 16 05:31 PM yellowhoard wrote:
> Hope none of you have bought any of those tungsten filled gold bars.
>
> Latest rumor has it that GLD's vaults are stuffed with them.
Obama has just sent them the absolute wrong signal today.
"Things" will happen downstream of this moment. Perhaps I'm just too tired to think clearly now, better to let it rest, but I cannot shake the feeling that I should be doing something obvious for tomorrow...
On Nov 16 02:04 PM optionsgirl wrote:
> Chinese are encouraging silver sales to individuals.
What's your take, everyone?
Though you could make fake bars by suspending a core of tungsten in the mold and filling around it with a thin coat of gold. Doesn't seem probable...
This is what I'm hearing on the street.
Just as with the Chinese manufacturing buildup now in a race between completely filling every wharf, freighter, warehouse and vacant building in China OR the world's economic recovery so that they can resume binge-consumption of Chinese exports, I see something similar with gold. Either the world economy resumes something like a normal growth pattern, and gold stops short of a ballistic price (a $1200 limit has been my working estimate for a long time here), OR it becomes largely a non-industrial metal (and a much lower volume jewelry item) hidden away in the world's vaults.
Underlying this is the third analogy, for both groups. The Chinese can also ram INTO the brick wall where they cannot either store or consume their rapidly growing manufacturing capacity, which will dump them into a really nasty economic meltdown. And Gold can fail to achieve some form of currency-replacement role, while simultaneously losing its other primary demand cycle for industrial and jewelry markets, which will dump it into a really nasty price cut.
I see silver as the winner.
On Nov 16 08:08 PM Mayascribe wrote:
> With $50B or so shorting silver, is it time for a monster short squeeze?
> I'm on the fence as to jump in big now, or wait for the shorts, ie.,
> JPM and the Nova Scotia bank to get their way, and then jump in big.
>
>
> What's your take, everyone?
I can't figure this out. I just hate not having a nice position in the metals. I don't sleep well when I have been stopped out and the price starts going UP not Down.
If it gets to 21 and then corrects its gonna get really ugly. What to do, what to do?
On Nov 16 11:16 PM doubleguns wrote:
> I believe that now that silver has gone past 18 it may be in a break
> out mode. If it stays above 18 this week I may have to go back in
> to ride up to 21 area or higher WITH TRAILING STOPS.
>
> I can't figure this out. I just hate not having a nice position in
> the metals. I don't sleep well when I have been stopped out and the
> price starts going UP not Down.
>
> If it gets to 21 and then corrects its gonna get really ugly. What
> to do, what to do?
I still have to remind myself Ted is not a day trader. He is long term not short term. However not getting in the game worrying about a short term correction before a long term trend to get more money is what we call being a hog.
Bulls make money, bears make money but hogs get slaughtered. At least once a year I have to relearn this. You betcha.
HOGGIN, City, USA, is where I live. HOG! OINK! Just don't get boinked.
TB: Invest in Mayascribe sleep cycles! You'll have profitable nightmares!
On Nov 17 01:57 AM Mayascribe wrote:
> One more piece of BS that's circulating. Buy and Hold is not dead.
> It's now buy and hold "business cycles." One business cycle right
> now is commodities, and could last at least another ten years. The
> other two I like are clean teck, and energy storage, with the occasional
> biotech idea. Big banks rock, too. More than a year ago I wrote,"Banks,
> batteries, and bullion," in one of John Petersen's columns. Hell,
> I wrote that several times. Wasn't far off, so far.
>
> TB: Invest in Mayascribe sleep cycles! You'll have profitable nightmares!
>
I see silver re-entering the currency stream before gold, if that's helpful to one's thinking. This will start in South America... IF it works, the example is likely to be emulated elsewhere (Mexico might follow along, they have talked in the past about a 100Peso note convertible into an ounce of silver).
Maya, I will wish you only profitable dreams, not nightmares! As for trading them...
We can't have you chronically "short" sleep!
seekingalpha.com/artic...
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