Gold
and silver are higher against all currencies (except the Canadian dollar) in
the wake of the worse than expected trade deficit number ($40.6 billion).
Sterling and euro are particularly weak against gold and the US dollar
today.
Silver
backwardation continues and while spot silver is at $30.09/oz, the March 2011
contract is at $30.07/oz and April at $30.01/oz. Incredibly, the July 2012
contract is trading at $29.93/oz and the December 2013 contract at $29.91/oz.
Backwardation
is when the market quotes a higher price for spot delivery or a more nearby
delivery date, and a lower price for a distant delivery date in the futures
market. It indicates that buyers are concerned about securing supply in the
future and are willing to pay a premium for spot delivery. It suggests that
silver bullion in volume is difficult to buy and that the physical market is
stressed and becoming less liquid.
Silver in USD – Long Term
Backwardation starts when the difference between the forward price in the
futures market and the spot price for physical delivery is less than the cost
of carry, or when there can be no delivery arbitrage. This is generally
because the asset is not currently available for purchase or is increasingly
illiquid.
It can
end in default, failure to make delivery, and in sharply higher prices.
Backwardation
rarely happens in the gold and silver bullion markets. Since gold futures
first started to be traded in 1972 (on the Winnipeg Commodity Exchange),
there have only been momentary backwardations of a few short hours.
The
extent of the backwardation in silver is unprecedented. It suggests that
retail investment and industrial demand internationally is very robust and
the small silver bullion market cannot cater to the level of demand for
refined coin and bar product.
This
is not surprising considering the massive increase in demand, especially from
Asia and China in recent months. In China alone, demand increased a huge four
fold in just the last year to 3,500 tonnes.
Table Courtesy of Mitsui
Investment demand for silver both as a store of value and as a hedge against
inflation continues to surprise the bears. Many buyers in Asia have
experienced stagflation and hyperinflation.
The
demand is also very strong on the industrial side where the increasing range
of industrial applications is leading to very significant demand that the
silver market does not appear to be able to accommodate at these prices.
Solar
energy demand has risen massively from a near zero base and Barclays
estimates that this equates to more than 800 tonnes of silver being employed
in cells in 2009, which translates to about 8% of silver industrial demand
and 4% of global silver supply.
Barclays
estimates that silver usage in solar panels could more than double and reach
2,000 tonnes by 2012. This would consume 7% of global silver output.
This
is just the solar energy sector. There remains a huge range of industrial
applications for silver. While demand from the photography sector has
declined, demand from the medical, solar energy, water purification and many
other sectors continues to rise significantly.
Importantly,
this silver is consumer and because tiny filaments are used, most of this
silver will not come back into the silver market. A small amount may, but
only at dramatically higher prices.
Those
with concentrated short positions in the silver market (as identified in the
CFTC investigations), such as JP Morgan, will be very nervous about the
extent of this demand. Any effort by them to extricate themselves from these
substantial short positions may lead to the squeeze that has been anticipated
for months.
This
means that silver’s nominal high of $50/oz will likely be seen soon
rather than later. As we have been saying since 2003, the long term inflation
adjusted high of $130/oz remains a viable long term price target.
Gold
Gold
is trading at $1,363.85/oz, €1,007.87/oz and £852.83/oz.
Silver
Silver
is trading at $30.08/oz, €22.23/oz and £18.81/oz.
Platinum
Group Metals
Platinum
is trading at $1,821.50/oz, palladium at $820.00/oz and rhodium at $2,450/oz.
News
(Bloomberg)
-- Gold Futures in New York Rise, Heading for Third Weekly Advance
Gold for April
delivery in New York gained 0.1 percent to $1,364.20 an ounce at 10:05 a.m.
Melbourne time, heading for a weekly advance. Bullion for immediate delivery
fell 10 cents to $1,363.70 an ounce.
(Bloomberg)
-- Gold May Gain on Federal Reserve Policy Outlook, Survey Shows
Gold may
advance on speculation the Federal Reserve’s plans to maintain
near-zero interest rates will spur investment demand, a survey found.
Twelve
of 15 traders, investors and analysts surveyed by Bloomberg, or 80 percent,
said the metal will rise next week. One predicted lower prices and two were
neutral. Gold for April delivery was up 0.9 percent for this week at
$1,361.80 an ounce at 11:15 a.m. yesterday on the Comex in New York.
While
a lower jobless rate gives “some grounds for optimism,”
unemployment will take “several years” to return to a “more
normal level,” Federal Reserve Chairman Ben S. Bernanke said on Feb. 9.
The U.S. needs faster employment growth for a sufficient time before policy
makers can be assured the economic recovery has taken hold, he said last
week. The Fed has kept plans to buy $600 billion of Treasuries through June
and hold borrowing costs “exceptionally low.”
“The
Federal Reserve will continue its quantitative easing of monetary policy as
planned, and there are no signs yet that the Fed could raise interest rates
any earlier than assumed,” said Daniel Briesemann, an analyst at
Commerzbank AG in Frankfurt. “Both are positive news for gold
prices.”
As of
last week, futures indicated that traders expected the Fed to begin raising
rates in a year’s time.
The
weekly gold survey that started six years ago has forecast prices accurately
in 198 of 349 weeks, or 57 percent of the time.
This
week’s survey results: Bullish: 12 Bearish: 1 Neutral: 2
(Bloomberg
BusinessWeek) -- Carlos Slim Beats Out Buffett and Gates
Mexican
billionaire Carlos Slim topped Bill Gates and Warren Buffett in the money
game for the second straight year. The value of Slim's publicly disclosed
holdings, in industries ranging from mining to telecommunications, surged
about 37 percent, to $70 billion, in 2010, according to data compiled by
Bloomberg. The 22 percent jump in Berkshire Hathaway (BRK.A) shares wasn't
enough for Buffett to catch up, and Gates's Microsoft (MSFT) stock fell 8.4
percent, hurting his returns even as he spread his investments to other
companies.
Slim's
best-performing asset last year was holding company Grupo Carso, which almost
doubled in value as it prepared for this year's spinoff of its mining
operations amid soaring gold and silver prices.
(Commodity
Online) -- Marc Faber: Gold, Silver prices to fall [may fall in the short
term]
Legendary
investor, economist and commodities analyst Marc Faber says that prices of
precious metals, especially gold and silver, could fall, but investors need
not worry because the dip in the prices of these commodities will be shot
term.
In his
February outlook on commodities, Faber who is better known as the editor and
publisher of the Gloom Boom and Doom report said that commodities have
reached the parabola stage.
Warning
that investors should prepare for some downside volatility in commodities,
Faber said that long term he is still bullish on the metals.
But
Faber said that precious metals, especially gold and silver could fall in the
short term with the general market.
Gold
could fall to the $1,100-1,200 area, Faber said.
For
investors this should not cause any alarm because with the fiscal problems of
the US and further monetization, the future for gold is still bright, he
said.
Faber
would use any decline in precious metals to add to his positions.
Faber
is concerned about commodities, as they are currently very overbought by
almost any measure. He goes on to say that commodities seem to have reached
the parabola stage--going straight up, which is usually the very end of the
move. Yes, it could last longer than anyone expects, but at some point prices
will collapse again, as they did back in 2008.
This
cycle, Faber notes, always occurs as higher prices lead to an increase in
supply, which eventually overwhelms the market causing prices to fall. The cycle
is longer for industrial commodities compared to agricultural prices as it is
harder to build a new copper mine than it is for a farmer to plant more
soybeans.
This
cycle will play out even with the Fed's money printing. Investors should
prepare for some downside volatility in commodity prices.
(FT)
-- EU plans to lift import curbs on soaring food commodities
Europe has
moved to loosen import restrictions on important agricultural commodities in
response to tightening domestic markets and skyrocketing prices.
The
European Commission’s agriculture committee proposed suspending import
duties on feed wheat and barley – as well as allowing additional sugar
imports at lower tariffs than usual. The proposals are only in draft form and
will need to be voted on at forthcoming committee meetings, which are held
twice a month.
The
measure is the clearest acknowledgement yet of the tightness in European
agricultural markets.
Cairo
(AP) -- Investors Shift Money From Gold to Riskier Assets
Greater
confidence in the economy is leading investors to move money out of gold and
into riskier assets in search of bigger profits.
Gold
prices have fallen 4.2 percent since the beginning of the year as more
evidence surfaced that the economy is strengthening.
Mark O’Byrne
Goldcore
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