06 May 2011

Gold and Silver - So that was an interesting week!

Gold and Silver both hammered in Precious Metals and wider commodities rout.

Last weekend as I sat down to write, it was all looking so very rosy. Silver was sitting pretty just shy of $48 an ounce. Gold was sitting prettier at $1,565 an ounce. However as I and many others had cautioned in the past, the flows of speculative money into Silver in particular were too far, too fast, and an accident waiting to happen. A big one.

It is hard to imagine a worse set of circumstances for silver than those visited on it this week, where it has lost 28% of its value. The catalyst for this correction was ostensibly the death of the worlds number one terrorist, but in reality the real story was the hiking of margins on the CME and other exchanges had the net effect of making speculating on Silver up to 75% more expensive on these exchanges. That was always going to shake out the speculative players. Further more, a wider fall in commodity prices across the board, perhaps triggered by investors taking the announced floatation of Glencore as a market top signal, added more fuel to the Silver bonfire.

So while anyone who was holding Silver last week is undoubtedly feeling a little bruised after this weeks action, it is worth remembering that while prices have fallen some 28%, they are only back to where they were in mid March.

However, amongst the bloodbath of Silver, Gold faired better, with the Bank of Mexico announcing that it purchased 85 tonnes of Gold in March and April, this helped protect Gold from the worst of the storm. In contrast to silver, Gold has fallen back to levels seen just three weeks ago.

So as precious metals investors head into the weekend (no doubt many with a stiff drink) pondering the future direction of the market, it is worth remembering that the death of the number one terrorist, and the hiking of CME margins will not reverse the US Dollars woes, Eurozone sovereign debt worries, vast Chinese and Indian demand for precious metals, or the biggest issue of them all, a yet to be addressed truly massive US deficit.


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