Gold and silver are tentatively lower this morning despite the dollar and especially the yen being under pressure. The possibility of Japan being downgraded has seen the yen join the dollar under pressure and gold has risen to over 124,000 Japanese yen per ounce, some 2% below the record nominal high just over 126,000/oz.
Gold in Yen - 1 Day (Tick)
Japan's public finances were already very poor prior to the earthquake and nuclear catastrophe and are set to worsen considerably, which should see the yen fall sharply versus gold.
Sovereign debt risk remains elevated in the eurozone and the cost of servicing peripheral nations' debt continues to rise. The cost of insuring debt sold by Greece, Portugal and Ireland rose to records this morning as have bond yields in Greece which have leapt to new records - over 16% on the 10-year and 25% on the 2-year. Irish and Portuguese 10-year yields have risen to 10.63% and 9.65% respectively.
Sovereign debt risk can now be seen in the eurozone but also in Japan and the US, and as long as sovereign debt risk remains elevated, precious metals will continue to be bought as hedges and for safe haven purposes. This should lead to the continuation of gold and silver's secular bull markets. Although, participants should as ever realise that there will be corrections - some of which can be sudden and sharp.
Evidence shows that speculation in gold and silver remains muted as seen in the Commitment of Traders reports and the total gold and silver ETF holdings - neither of which have shown huge increases or signs of irrational exuberance or investors piling in.
Commitment of Traders (COT) data is hardly indicative of an overly bullish sentiment extreme that would normally precede a sharp sell off.
Total ETF silver holdings (see below) have risen in recent days but are not far above the levels seen in December 2010 - some 5 months ago.
Total Silver ETF Holdings - 1 Year (Daily)
Indeed, the ETF holdings appear to show that ETF precious metal holders are stickier hands than had been expected as gold holdings look to have consolidated above the 64 million ounce mark.
Total ETF gold holdings at 66.55 million ounces are worth nearly $100 billion at $1500/oz ($99,825,000,000). Total silver holdings of 498.914 million ounces price at $45.50/oz are worth only some $22.7 billion, suggesting that silver remains under-owned when compared to gold and could see a sharp increase in holdings in the coming months and years.
The $22.7 billion (total silver ETF holdings) is a small number when compared to the huge sums of money at the disposal of high net worths, hedge funds and sovereign wealth funds. The last quarter saw Apple's iPhone revenue alone top $12 billion. This puts the silver holdings figure in perspective.
One hedge fund alone, the Man Group, has assets of over $69 billion.
Some Clients Taking Profits and More Opting for Coins and Bars
Many of our clients have taken profits on certificates in recent days. Most continue to be prudent and continue to maintain a core holding (for portfolio diversification and financial insurance purposes) but there are definitely concerns amongst some of a bubble.
Others have taken profits on certificates and bought gold and silver coins and bars (in secure storage or delivered). Recently orders for coins and bars have outweighed those for certificates and there is definitely an increased preference for physical coins and bars and for taking delivery.
Our ratio of sell orders to buy orders is the highest it has ever been. Industry associates confirm that they have been seeing an increase in selling on behalf of the public and that speculative buying continues but is minimal.
The majority of the western public remain unaware of gold and silver as investments and as stores of value. Most do not even know how much an ounce of gold costs in local currency terms as precious metals continue to be ignored by most of the non financial press or media.
This is in stark contrast to the Middle East and Asia where demand remains robust and may even be increasing due to inflation concerns.
Ignorance regarding gold and silver in much of the western world is hardly indicative of a mania or speculative bubble.
Gold is trading at $1,508.25/oz, €1,028.10/oz and £911.05/oz.
Silver is trading at $45.44/oz, €30.97/oz and £27.44/oz.
Platinum Group Metals
Platinum is trading at $1,807.00/oz, palladium at $749/oz and rhodium at $2,250/oz.