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For How Long will the Era of Cheap Silver Prices Continue?

For How Long will the Era of Cheap Silver Prices Continue?

Release Date:  Friday, May 25, 2018

Gold and Silver Prices

Gold prices rose this week and reached a level above $1,300 following President Trump’s announcement of cancelling the summit meeting scheduled with the North Korean leader.

“The settlement above $1,300 ‘may indicate the worst of the selling is over,’ said Mark O’Byrne, research director at GoldCore. ‘Despite the short term technical risks, the medium and long term outlook remains bullish. Elevated geopolitical risk should see safe haven demand remain robust.’” (“Gold ends lower, but holds above key $1,300 level to book a weekly gain,” Myra P. Saefong and Rachel Koning Beals, Market Watch, 05.25.18.)

Gold ended the week up $10.00, closing at $1,301.70. Silver ended the week up $0.05, closing at $16.51.

For How Long will the Era of Cheap Silver Prices Continue? - Millman

Silver prices are very low considering its high demand over its supply.

“One of the running themes of the silver market since the economy recovered from the financial crisis has been an apparent disconnect between silver prices and the realities of supply and demand.

“Even as demand for the precious metal has consistently been strong from both investors and industry, the price of silver has stagnated between about $15 and $20 per ounce. Essentially, silver prices have gone sideways for years.

“However, it’s still worth noting that silver has risen over 17% from its lows in 2016.

“Gold has been somewhat stronger over that period by comparison: The yellow metal is up about 24% from its 2016 nadir. The gold-to-silver price ratio is now near its highest (in favor of gold) in a decade.

“As far as fundamentals are concerned, this relationship seems backward. New data from the Silver Institute reveals that silver demand rose last year while supply actually fell.

“This dynamic-falling supply and rising demand-would seem to be the perfect recipe for higher silver prices.

“What makes the historically high level of the gold-silver ratio especially odd is how silver is used in industrial applications. Whereas much of the existing gold supply (before even accounting for newly mined gold) is recycled, roughly half of the silver that is produced each year gets used up by industry.

“As a result, the annual growth and replenishment of the silver supply is not nearly as high as mining output would imply...

“Moreover, the latest mining data hardly suggests a supply glut. The numbers from the Silver Institute, which were supplied by research from GFMS Reuters, show that silver production dropped for the second consecutive year in 2017 after thirteen straight years of rising output.

“It was also the fifth consecutive year of a supply deficit from silver mines.

“It begs the question: Why is silver undervalued in such an environment? There is a simple answer to the question posed in this article’s headline: The supply deficit apparently means nothing.

“... Savvy investors should be taking advantage of this accumulation opportunity for as long as it lasts.” (“For How Long will the Era of Cheap Silver Prices Continue, Everett Millman, commoditytrademantra.com, 05.21.18.) 

Gold Lifted By Canceled North Korea Summit, Weaker Dollar - Ramkumar and Hodari

Gold prices rose after geopolitical tensions involving North Korea and a decline in the dollar.

“Gold prices rose back above $1,300 Thursday, lifted by a declining dollar and drop in Treasury yields and news that President Donald Trump has canceled a June summit with North Korean leader Kim Jong Un

“Gold for June delivery added 1.2% to $1,304.60 a troy ounce...Prices last week fell below $1,300 for the first time this year with the dollar and Treasury yields rising, as a stronger dollar makes gold more expensive for overseas buyers and higher yields make the metal less attractive to some investors.

“But on Thursday, that trend reversed, with the WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, edging down 0.2% and the yield on the benchmark 10-year U.S. Treasury note falling back below 3%. Yields fall as bond prices rise.

“Some analysts interpreted Wednesday’s Federal Reserve meeting minutes as more conservative and signaling that the Fed plans to remain on a gradual path of rate increases even if inflation meets its target. That could be a positive for gold, which is used by some investors to hedge against a rise in consumer prices and downturn in stocks.

“’[The second quarter] is likely to mark the weakest quarter for gold, but we expect prices to average $1,375 in [the fourth quarter], as we believe the [dollar] will renew its weakening trend and the potential for inflation expectations will rise,’ said Suki Cooper, precious metals analyst at Standard Chartered Bank in New York, in a note to clients.

“Geopolitical tensions also tend to boost gold, and Mr. Trump scrapping the meeting could be a sign to some analysts that tensions with North Korea might persist.” (“Gold Lifted By Canceled North Korea Summit, Weaker Dollar,” Amrith Ramkumar and David Hodari, The Wall Street Journal, 05.24.18.)

Price Bounce Expected To Continue - Sykora

Increased political uncertainty, higher interest rates and uneasiness in the stock market are all reasons why market professionals are bullish on gold.

“Wall Street and Main Street both look for gold to continue a price recovery next week, based on the Kitco News weekly gold survey.

“Gold recouped the $1,300-an-ounce level during the latter part of this week after hitting its weakest price of 2018 on Monday. Catalysts behind the comeback included a technical bounce, Federal Open Market Committee minutes that did not show any signs that policymakers want to tighten any more than they have already signaled, and cancellation of a summit between the leaders of the U.S. and North Korea.

“Eighteen market professionals took part in the survey. There were 11 votes, or 61%, calling for gold prices to rise. Another four voters, or 22%, were looking for gold prices to ease, while three voters, or 17%, see prices unchanged or sideways.

“Meanwhile, 730 voters responded in an online Main Street survey. A total of 393 respondents, or 54%, predicted that gold prices would be higher in a week. Another 243 voters, or 33%, said gold will fall, while 94, or 13%, see a sideways market.

“For the trading week now winding down, Wall Street voters were split, with 44% calling for higher and the same for lower, while Main Street leaned slightly bearish with 49% of respondents expecting prices to decline. Around 11 a.m. EDT, Comex June gold was up 0.9% for the week so far to $1,302.80 an ounce.

“’Gold rebounded...after the Fed minutes seemed to suggest that they were willing to let inflation run hot,’ said Phil Flynn, senior market analyst with Price Futures Group. ‘Even though the strong dollar weighed on the market last week, strong physical demand and increasing geopolitical risk should allow us to have a bullish week.’
“Adrian Day, chairman and chief executive officer of Adrian Day Asset Management, also looks for gold to rise.

“’The factors that have weakened gold in recent weeks and months-easing of international tensions, particularly over Korea; higher interest rates; and a strong stock market-are all in the process of unraveling,” Day said. “Higher rates and a June hike [are] already priced into the gold market, but if the Federal Reserve goes slower after that, it will be positive for gold.’

“Sean Lusk, director of commercial hedging with Walsh Trading, figures gold could challenge $1,330 again in the weeks ahead. ‘There is some uncertainty in the air with a little uneasiness in the stock market,’ Lusk said. ‘We hit bargain hunting under $1,300.’

“Added Adam Button, managing director of ForexLive: ‘The geopolitical sands are shifting and hopes for a more peaceful world have been dashed by moves on Iran and North Korea. That uncertainty will lend a bid to gold.’” (“Price Bounce Expected To Continue,” Allen Sykora, Kitco News, 05.25.18.”

Gold is back: The rise in geopolitical tensions boosts precious metal prices - Lahiff

Gold still considered a safety hedge in terms of geopolitical uncertainty.

“Gold prices just had their best day in more than a month as renewed tensions with North Korea pushed investors into less risky assets.

“Trying times call for the safety trade, says one market watcher.

"’It makes sense to hold it as a pure play because of all the geopolitical risk that's out there. It's still a calamity hedge,’ Mark Tepper, founder and president at Strategic Wealth Partners, told CNBC's "Trading Nation" on Thursday.

“The GLD Gold Trust SPDR ETF spiked nearly 1 percent on Thursday in its best one-day gain since the beginning of April. Tepper has a 3 percent position in GLD, preferring it over gold miners because it is a noncorrelated asset class not subject to moves in the stock market.

“Tepper also favors gold as a guard against stagflation, an environment where inflation reaches highs, economic growth slows and unemployment spikes. Tepper's research points to a recession in mid-2020 followed by a period of stagflation.

"’During periods of stagflation, on average, the average holding period return of the S&P 500 (and these periods are like one- to six-years long) is 14 percent. The average return of gold in those same periods 85 percent,’ said Tepper.

“Gold prices surged in the 1970s during the period that inspired the term "stagflation." Gold prices moved around 15 times higher over that decade, according to World Gold Council data.” (“Gold is back: The rise in geopolitical tensions boosts precious metal prices,” Keris Lahiff, CNBC, 05.25.18.)