The Gold Economy

Gold

Gold has rallied to new record highs in early New York trading again today due to continuing nervousness in markets and much uncertainty about the economic outlook for the coming months. Equity markets are mixed, oil is back over $78 a barrel but most importantly the dollar continues to fall in value against most currencies and especially gold.

Competitive currency devaluations continue with suspicions that many Asian central banks (including South Korea, India, Malaysia, Taiwan, the Philippines and Singapore) were intervening in currency markets overnight attempting to devalue their currencies and maintain export growth. The concept of currency debasement has been anathema to markets in recent years but it is again beginning to enter the popular consciousness with obvious positive ramifications for the gold market.

Gold is currently trading at $1,312.27/oz, €963.28/oz, £825.80/oz.

Silver

Silver may soon challenge long term resistance at $22.38/oz (weekly close) a price level last seen nearly exactly 30 years ago on 26th of September 1980. A close above this level would be very bullish and could see silver challenge the psychological round numbers of $25/oz and $30/oz. The record quarterly high of $32.20/oz (on 31/12/1979 – see chart below) will also be looked at by chartists and technically minded traders. Long term, the nominal high of $50/oz remains quite possible given the favourable supply demand dynamics.

Silver – 42 Year (Weekly).

Click on image to view full size

Silver remains undervalued on an historical basis and is undervalued even against gold. While gold has begun to receive some interest from retail investors, silver remains the preserve of relatively few contrarian investors and the media and financial press rarely if ever covers silver. And yet silver is quite likely in the intermediate stage of a bull market that may rival that of the 1970s.

Gold (orange), Silver (yellow) and Gold/ Silver Ratio (white) – 40 Years. Click on image to view full size

Many analysts believe that silver’s ratio to gold will revert to its mean average in recent history below 50:1. Even if gold only remained at some $1,300/oz this would see silver rise to some $26/oz ($1,300oz/50=$26/oz).

Silver – 40 Years (Quarterly). Click on image to view full size

A quarterly close for silver today near the $22/oz level will be bullish technically as it will be the second highest quarterly close ever. Chart watching traders may see the record quarterly high of over $32/oz as the next level of real resistance. While the record high in January 1980 is often attributed to the Hunt Brothers cornering the market – it should be remembered that there are thousands of more billionaires in the world today, not to mention hundreds of powerful hedge funds, many of which could again attempt to corner the silver market.

Silver is unique in terms of being both a monetary and an industrial metal. Silver is priced at some 22/oz today. The average nominal price of silver in 1979 and 1980 was $21.80/oz and $16.39/oz respectively. In today’s dollars and adjusted for inflation that would equate to an inflation adjusted average price of some $60/oz and $44/oz in 1979 and 1980. It is for this reason that we believe silver will be valued at over $50/oz in the coming years. Portfolio diversification with non-correlated assets is essential now more than ever and investors should consider a small allocation to silver.

Silver is currently trading at $21.98/oz, €16.13/oz and £13.83/oz.

Platinum Group Metals

Platinum is trading at $1,655.00/oz, palladium is at $567/oz and rhodium is at $2,300/oz.

Disclosure: Long gold, silver, platinum, palladium, rhodium, precious metals