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Cheap Gold and Silver prices – the deal of a lifetime?

20 Jul

Eerily, perhaps the worst precious metals market sentiment currently exists that has been observed since the early 1970’s.

mcx gold silverThe gold and silver markets have fallen dramatically in the wake of the FOMC signaling an end to its controversial Quantitative Easing or QE programs. The pricing in of such FedspeakQE taper-talk has also triggered a yield spike in southern Europe that could deepen that region’s existing debt crisis.

Furthermore, sharply rising interest rates have resulted as billions of investors exit perhaps the largest financial bubble ever seen. The end of cheap real estate refinance has finally arrived as mortgage rates are now approaching five percent.

Rising government bond rates mean more money that will increase the chances of stealth inflation. The Fed acting to crush the effects of inflation may even lead to more money printing.

Other background factors

In addition, rising oil prices have been cutting in to already lofty equity valuations, as fallout from the “Black Swan” in the Gulf of Mexico expands. Gasoline prices are already rising.

The public has also been caught largely off guard by embroiling social unrest in various parts of the world. This dissatisfaction is indirectly the result of exporting inflation that is collateral damage from currency depreciation wars.

A dead precious metals mining sector has been cutting off any “perceptual” idea of supply as paper metal prices are now well below the cost of production. New supply matters little for gold. For silver, by the time the sector catches up with demand, there will be no silver left.

Precious metal prices suffer despite bullish fundamentals

Offset by an unprecedented and record breaking surge in physical demand for silver, from silver coins to international demand. Yet, eerily, perhaps the worst precious metals market sentiment currently exists that has been observed since the early 1970’s.

Bullion banks are currently long buyers by every indication, yet they are still maintaining a concentrated short position in the futures market. This could be an intentional effort to suppress physical metal prices by selling paper so that they can accumulate real metal more cheaply.

In short, it is unfathomable how low the precious metals markets are by any measure. Technically, the market could still go lower, but does this change the likelihood that investors have now been presented with what seems to be the precious metal buying opportunity of perhaps multiple lifetimes?

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Gold Pares Losses, Holdings at Biggest ETF Edge Up

10 May

Gold edged higher on Friday as the euro steadied against the dollar, but was on track for its first weekly fall in three weeks after brightening job prospects in the United States hurt its appeal as an alternative investment.

A slight increase in SPDR Gold Trust’s exchange-traded holdings — the first since mid-March — offered a glimmer of hope for the metal, which has fallen 12 so far this year as investors switch funds into a rallying equity market.

Spot gold dipped to USD 1,452.84 an ounce before rebounding to USD 1,460.31, up USD 2.61. U.S. gold futures for June delivery hit a session low of USD 1,451.60 an ounce and stood at USD 1,459.60 by 0435 GMT, still down USD 9.00.

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings rose 0.26 percent to 1,054.18 tonnes on Thursday from 1051.47 tonnes on Wednesday, but are still near 4-year lows.

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Analysts said a pause in selling would support gold, but it was too early to call a halt to sales.

“If you look at total gold holdings, not only SPDR, they are still coming down. I won’t be so quick to say that sentiment is changing,” said Joyce Liu, an investment analyst at Phillip Futures in Singapore.

“At least for now, physical buying can still provide some support. All hopes are now actually pinned on China. The demand in India is slowing because the Tritiya festival is coming soon and most traders have stocked up.”

India, the world’s biggest gold consumer, celebrates Akshaya Tritiya next week, the biggest gold-buying festival after Dhanteras. (Why buying gold this Akshaya Tritiya isn’t advised)

Premiums for gold bars in Singapore, which sells gold to India, slipped to USD 2.50 an ounce to spot London prices from USD 3 last week. But supply remained tight in Hong Kong due to strong demand from second-largest consumer China, keeping premiums at multi-month highs at USD 3.

“People in Hong Kong are still complaining about tight supply. It looks like at those retail shops, their stocks are swept out every day,” said a dealer in Singapore.

Gold sank to around USD 1,321 on April 16, the lowest in over two years, after worries about central bank sales and a drop below USD 1,500 led to a sell-off that stunned investors, prompting them to slash ETF holdings.

The price drop spurred a surge in physical buying in Asia and other parts of the world, which helped pluck prices from the lows. Chinese gold imports are expected to swell further after more than doubling to an all-time high in March.

“How long can China support the physical market? But I think it still can provide some support in the short to medium term. Technically, gold can test the USD 1,487 level again,” said Liu at Phillip Futures.

Japanese equities soared to a 5-1/2-year peak on Friday as the dollar’s break above the symbolic 100 yen level underpinned sentiment, while Asian shares fell as global equities took a breather from recent rallies overnight.

A falling yen lifted gold futures on Tokyo Commodity Exchange, with the most active contract, currently April 2014, rising to its highest since mid-April.

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