So far this week we have seen all-time highs ($1227.50) in the Gold market and watched Silver trade over $19.40 per ounce. The Gold market has been fueled by an influx of speculators, hedge funds and central banks all seeking to add to their positions and reserves. Many countries are moving out of their U.S Dollar reserves and into precious metals safe havens to protect their assets against possible global inflation. Recently we have witnessed the purchase of IMF Bullion from the central banks of India (200 metric tons), Sri Lanka (10 metric tons) and Mauritius (2 metric tons). This may only be the tip of the iceberg as India, China, and Russia to name a few have expressed interest in building their reserves as the U.S Dollar continues its struggle against the basket of currencies.
Dubai's debt crisis could be China's opportunity to snap up Gold and Oil assets a senior Chinese official was quoted as saying Monday. This emphasis the realization the danger for investors is not just not just in corporations it is also exists in Nations. Dubai has asked for debt freeze or extension in order to repay $60 Billion Dollars it owes its creditors.
The gold market has rallied over 35% on the year thus far. This is a direct result of the diversification away from the Dollar. With the lack of Dollar confidence, ongoing recession and world wide stock market fluctuations it certainly makes sense for investors to seek safer havens.
The silver market has certainly profited from the recent Gold rally as Silver is trading over $19.40 per ounce. As jewelers are reporting a higher demand for Silver due to the high price of Gold. Also there appears investors are taking physical delivery of both Gold and Silver as an alternative or a hedge to trading the Stock market. This shows a lack of trust or confidence in investments that are not tangible. Silver offers a better bang for the buck. (19.40 oz. versus $1200.00 oz. Gold)
We are also still in the heart of India's wedding season which extends to the end of January and as they consume approximately 20% of the world's bullion I expect them to purchase their traditional Gold ornaments however, using less Gold. (instead of 22 carats / using 18 carat) As we are approaching year end it is important to realize there may be some profit taking from speculators and hedge fund managers alike as they prefer to end the year in the black. There are many BUBBLE theorists and market technicians claiming how OVERBOUGHT' the market has become. Actually I believe them to be correct however, how big will this bubble become and until the Dollar can gather and sustain momentum (FOMC RATE HIKE) the seasoned investor will continue to move into safer havens or hard assets such as precious metals.
Mike Daly / Gold Specialist