Gold prices once again dipped to, and found support at the $895 area in overnight dealings. Asian and European participants sold the metal and sealed profits following bullion's recent rally to $930. Although the momentum did not carry gold to the next important potential launch pad levels around $940 and $950, speculative long positions as of Feb. 3 rose to a lead of over 155,000 ahead of short ones. Bets are still implying that various stimulus packages being placed under the world's faster-than-fast-collapsing economies will be difficult to mop up by central banks, once the crisis passes.
Such anticipation may be correct in its overall spirit, but it has also often proven either premature, or way overinflated, itself. It is true that central banks are giving up some of their cherished independence in the latest phase of the global debacle, but it is also true that their spokesmen have asserted that balance sheets can be shrunken at a fast clip, due to the short-term nature of many of the assets being held by them. For the moment, however, government footprints are quite visible in central bank policies and statements. No surprise, given the risks at hand.
Monday morning's New York precious metals trading opened with a $9.00 loss for gold, quoted at $902.70 spot bid, despite small declines in the US dollar on the index (to near $85.20) and a slim gain in crude oil values (up $0.60 at $40.77 per barrel). Oil eked out its gains mainly on perceptions that the stimulus will...stimulate demand for it down the road. Silver bobbed by pennies over and under the $13 mark at the open (down 14 cents at $12.99) while platinum and palladium lost ground at the open.
US carmakers GM and Chrysler appear likely to receive a Chapter 11 label by Uncle Sam. This as a way of ensuring that the billions in taxpayer money being lent to them get first priority when repayment time rolls around. Combined with Nissan's announcement of 20,000 jobs to be axed, the news made for unhappy developments in the noble metals pits. Platinum lost $26 and palladium shed $3 at the open, as they fell to $975 and $208 per ounce, respectively.
The Japanese yen rose against the greenback following the delay of the premiere of the US stimulus package. The 'reveal' will now come tomorrow morning, as Mr. Geithner & Co. grapple with what to do about the toxic mound of illiquid assets still sitting at the centre of the frozen credit arena. The dollar, in turn, rose against the euro as European investor confidence once again slipped this month as the worst recession since WW II batters the Old World. Confidence levels basically showed an almost complete absence of same, as the numbers sank to their lowest levels on record.
Silver's recent pop to $13 has many perma-bulls looking for a redemption after the chart pattern that emerged since last March's highs. Some have (once again, in error) assured us that the gold/silver ratio is poised to go back to some 'historical' level of near 20:1, and do so by having the white metal rise to, say, $45 for starters. Not so fast, according to CIBC analysts. Here are a few reasons why 'poor man's gold' may still offer less than gold - at least in 2009. Mineweb offers the latest in punditry for the runner-up metal:
While 2008 was supposed to be a banner year for silver, CIBC Global Markets suggested that events later in the year have tarnished silver's performance. In a recently published analysis, CIBC metals analysts Barry Cooper, Brian Quast and Cosmos Chiu maintained their 2009 and 2010 silver price forecasts of $12/oz and $11/oz respectively, advising, We believe that holding gold is better than holding silver through what we think will be a tumultuous 2009 and possibly longer.
After reaching highs of more than $20/oz in the early part of 2008, the analysts noted silver spent much of the latter part of last year languishing near $10/oz. A general interpretation has been that silver fell along with base metals, while gold's investment qualities held it somewhat above the fray. In first answering whether silver fell more the gold, the answer is a resounding yes, they said.
After a disastrous late 2008, we feel that silver's downside beta to gold will remain higher than its upside beta, the analysts asserted. At the first sign of a decline in the price of gold, investors will likely sell their silver holdings, but retain more of their gold holdings, since gold has a superior reputation as an insurance policy compared to silver. Therefore, for 2009, we believe that silver will likely offer lower returns than gold, with higher volatility, according to CIBC.
The analysts also predicted that as base metals increase in value, more silver mines become feasible, and silver output from mines will increase, perhaps beyond any increase in demand for the silver ETF.
However, a rising lead and zinc price would be a boon to silver producers and developers, the analysts also noted. As lead and zinc prices are expected to rise through 2009 and 2010, CIBC advises that many silver projects would likely come on line, thus increasing the supply of silver, and likely providing an overhang for the silver price by 2010.
In essence the metal value per tonne of ore mined could increase for the next couple of years, but this will be less due to any increase in silver prices, and more due to increasing by-product credits. This bodes well for the equities, particularly those with silver-lead-zinc deposits, but is unlikely to assist the silver price, the analysts said.