Gold and silver have consolidated on yesterday's gains as inflation, geopolitical and eurozone debt concerns support. Silver has risen above its 31-year record closing price of yesterday and looks set to target new record nominal intraday highs above $38.16/oz.
'Poor man's gold' is set for a record nominal quarterly close which will be bullish technically and set silver up to target the psychological resistance at $40/oz and then the nominal high of $50.35/oz . Silver's record quarterly close was $32.20/oz on December 31st, 1979.
While silver is up 22 percent this year and is heading for a ninth straight quarterly advance, its fundamentals remain very sound. With gold above its nominal record of 1980, poor man's gold continues to be seen as offering better value. To the masses in India, China and Asia, silver is the cheap alternative to gold and an attractive store of value and hedge against inflation and debasement of paper currencies.
Increasing global investment and industrial demand in the very small and finite silver bullion market is a recipe for higher prices. Thus, as we have long asserted, the gold/silver ratio is likely to revert to its long term average of 16 to 1.
A return to a ratio of 16 to 1 is likely due to basic supply and demand and the geological fact that there are 16 parts of silver for every one part of gold in the earth's crust.
The fact that a huge amount of silver has been used in industrial applications and consumer items since the industrial revolution of the 19th century makes a return to the 16 to 1 ratio likely in the long term.
$40/oz silver may offer psychological resistance and could see profit taking but those buying silver are strong hands who rightly believe that silver will very likely reach its 1980 nominal high of $50.35/oz. Real silver bulls believe that silver may reach its inflation adjusted high of $150/oz (seethe Financial Times' infographic below).
A tiny minority of retail investors has begun to look at silver, but it remains largely the preserve of the smart money, a very small amount of hard money advocates in the US and store of value buyers in Asia. Much of the price gains seen recently may be due to banks closing out some of their massive concentrated short positions which are being investigated by the Commodity Futures Trading Commission (CFTC).
Gold is trading at $1,429.04/oz, €1,005.90/oz and £887.89/oz.
Silver is trading at $37.76/oz, €26.58/oz and £23.46/oz.
Platinum Group Metals
Platinum is trading at $1,771.75/oz, palladium at $756/oz and rhodium at $2,350/oz.