Where Are Precious Metals Heading?
By Lawrence Carrel
It's been a stomach-churning period for the U.S. economy. During the first six months of 2008, the macroeconomic reasons that sent the stock market plunging into bear market territory pushed precious metals to new highs. But since then, gold, silver and platinum have experienced corrections ranging from 10% to 23%.
The question now: Have precious metals peaked or do they have room to rise?
Gold
The Bear Stearns bailout sent gold to an all-time intraday high of $1,033 an ounce in March. Since then, it's bounced in a trading range between $850 and $990. Trading as a commodity, gold underperformed oil and platinum for the first half. Two-thirds of gold's demand as a commodity comes from jewelry fabrication. That demand fell 55% during the first half.
"Demand was way down, but prices rose 15% for the first half of the year. That suggests the primary demand is investment demand," says Tom Winmill, portfolio manager at the Midas Fund [MIDSX]). "Gold is acting as an alternative currency."
As the first half ended and the second began, the mortgage crisis killed one bank, IndyMac Bancorp, and nearly collapsed the foundations of the U.S. mortgage market, Fannie Mae (FNM) and Freddie Mac (FRE). Stocks plunged. The government, however, quickly stepped in to guarantee unlimited credit to the two mortgage lenders. Simultaneously, food and energy costs have risen sharply.
This has put the Federal Reserve Bank in a precarious position. Central banks battle inflation by raising interest rates to tighten the money supply. However, to prevent any collapse in the financial system, the Fed needs interest rates low to keep markets liquid. This easy money fuels inflation, leaving the U.S. economy in a vicious circle and the Fed walking a tightrope.
Jeffrey Christian of the CPM Group, a precious metals research and consulting company in New York, says gold could take another dip to between $880 and $900 in August, but he expects the yellow metal to top its earlier high in the last quarter.
The Midas Fund's Winmill is even more optimistic. Jewelry demand typically picks up in the second half of the year as manufacturers prepare for the holiday season. If interest rates remain low and the dollar weak, he says gold could top $1,200 by year end.
Silver
In March, silver hit a 28-year intraday high of $21.35. It's since backed off to $17.57 as of Thursday's close. While silver trades relative to gold, it has different market issues. Silver has many more industrial uses than gold. For the first six months, silver faced strong demand from manufacturers of flat screen TVs, cell phones and computers. However, second-half demand is expected to weaken. A recession will impact silver harder than gold because fabrication demand will ease as consumers buy fewer electronics.
At the same time that demand may ease, silver's supply is increasing. New mines have come online recently, bringing a surplus of product to the market.
"That could weigh on the price of silver," says Joe Foster, portfolio manager of the Van Eck International Gold Fund [INIVX]. "Meanwhile, the supply of gold is tighter due to declining gold production. However, I think silver will follow gold wherever it goes. If gold makes new highs, then silver will make new highs too. Silver is a much thinner and more volatile market. It takes a lot less demand to get the price moving higher."
Platinum
Unlike gold and silver, fundamental supply and demand drives platinum much more than the investment market. And for the past four years, there have been supply deficits.
Approximately 80% of the world's platinum comes from South Africa. For more than a year, electrical problems and rolling blackouts in South Africa have created supply disruptions. The mines are still not running at full capacity. Yet, as supply tightens, demand increases. This sparked the rally that pushed platinum to a high of $2,278 in March. Investor demand for the Platinum ETF in London also pushed the metal higher. But platinum is extremely volatile, and like gold and silver, it experienced a correction.
A large part of the platinum market goes into catalytic converters for cars. Signs of an economic slowdown in the U.S., including falling demand for cars, pushed platinum sharply lower in July. On Thursday, it closed at $1,744. Yet, even as U.S. auto demand falls, worldwide demand, especially in Asia, continues to rise.
"Demand is expected to be strong even though the U.S. is flirting with recession, because economic growth will still be positive globally," says David Jollie, publications manager at Johnson Matthey, a refiner and manufacturer of platinum products. "Platinum is used for computer hard discs and that demand is rising."
Jollie says it's difficult to tell where platinum will end the year because the commodity market looks weaker than six months ago. There is upside potential, but the signs aren't clear.
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This article has 25 comments:
- Gross Profits
- 3 Comments
Jul 25 03:06 PM- junkyarddog
- 63 Comments
Jul 25 03:18 PMThe gold bugs see the commodity go over $1,500 in one year and anyone who dares a contrarian position is the subject of their wrath. Jim Sinclair (JSMineset.com) will even bet $1 million dollars with you, just in case you haven't heard their bullish predictions loud enough.
I own gold stocks myself as a hedge, but I can understand the article's argument that 2/3 of gold commodity demand is down 55% and that "may" put downward pressure on the price (sorry gold freaks, just a different view. Wrong, perhaps, but just a view).
Good article.
- User 232761
- 4 Comments
Jul 25 05:26 PM- gigem77
- 99 Comments
Jul 25 07:18 PM- dieuwer
- 192 Comments
Jul 25 09:59 PM"Demand was way down" REALLY? How about "Demand was strong".
And all the Eurobanks selling HUNDREDS of TONNES of gold every year, supposedly. And they do this for decades already. REALLY?
That means HUNDREDS of CUBIC FEET of gold flowing out the Eurobanks? YEah, right....
- bearfund
- 493 Comments
Jul 25 11:14 PMFor example, it is possible for prices measured in paper to rise rapidly while they are falling when priced in gold. That's exactly what stagflation is - deflation in real terms owing to weak demand combined with the printing of more money to chase the fewer goods the weak economy produces. For those of you keeping score at home, gold has "risen" in dollar terms at a 3-year annualized rate of around 27%. Shadowstats' "old CPI" US dollar price index rose at an annualized rate near 11% in the same period. What this means is exactly what I just described: the purchasing power of an ounce of gold has risen while the purchasing power of a US dollar has fallen. Expect this to continue for some time. The relative performance of gold's purchasing power and some other asset's provides a good way (a better way, to my thinking, than paper-denominated charts) to evaluate investments or trades - including speculation in paper money.
- GMiki
- 245 Comments
Jul 25 11:16 PM- Alex Filonov
- 272 Comments
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Jul 25 11:46 PM- The hand
- 486 Comments
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Jul 26 04:09 AMthe purpose of these articles are to enlighten us with data so that we have an understanding of the potential currents which will impact the price. this is not an emotional topic, to me gold is no different than copper or bonds.
on this point this article is useless. i don't care about opinion when the person being quoted is not the one who influences the market. gee, the price is going up? since i can remember, the gold pushers been saying gold is going up. never have i heard them once saying gold is going down. their opinions on forecasting price increases have lost validity.
some data to support your opinion please!
- CLH
- 598 Comments
Jul 26 10:16 AM- atotonilco
- 12 Comments
Jul 26 11:01 AM- phillips49
- 49 Comments
Jul 26 11:04 AM- bearfund
- 493 Comments
Jul 26 01:20 PMInstead of comparing gold vs. cash to DJIA vs. cash, you want to compare DJIA vs. gold (your cash). Was the former a good investment since 1979? Again, it depends on timing. If you simply bought and held for 29 years, yes. Then again, investing is in part a timing exercise, too - you'd have done twice as well if you'd gotten out of stocks and into cash in 2005 (maybe sooner; the oldest comparison chart I can readily obtain does not go back any farther) - see stockcharts.com/h-sc/u...=$INDU:$GOLD&p=W&a...
Gold is money, cash. Cash is normally a lousy investment. It's a great place to put your assets when, as now, most other asset classes are in bear markets. But there is no denying the power of the humble save-and-invest plan, in which you save a fixed part of your income every month (in gold, of course, because that's what we mean when we say cash) and invest part of your savings on a regular basis when conditions are favourable or we have a particular name or set of names we like. There is no timing at all of gold vs. dollars in this scheme; gold is simply our functional definition of cash. You can employ timing when choosing to invest if you wish, use technicals, look for value or growth or any other investing style you prefer.
In the long run, investments - assets that produce something - will outperform cash. If not, there is no economy and we will all have to go back to farming. But every investor should always have a little cash on hand to take advantage of opportunities that come along, and when conditions begin to appear unfavourable for investment - as they have since 2000-2001, it is wise to increase one's allocation of cash at the expense of stocks, especially those that are overpriced. That is where gold comes in - you'll do better with your cash position in gold than you will with your cash position in dollars. You cited an example in which bad timing made that supposition false. I'll take a longer-term view: the price of dollars in gold has only floated since 1971, so it's not terribly interesting to look at the purchasing power of gold vs. dollars before that. How many dollars would you have today if you'd put $35 in a savings account in January 1971? It would have to have been one hell of a savings account - you'd need to have earned 9.3% per year to preserve purchasing power more effectively than gold.
The truly astonishing thing is that even before 1971, when the dollar and gold were one and the same, banks actually paid interest on savings accounts. Can you imagine earning 3% interest, in gold, on your gold? No wonder they call them the good old days.
- gigem77
- 99 Comments
Jul 26 02:45 PMThe DXY is still weak, still below the 200 day simple moving average and that's compared to other weak currencies.
Paulson is going to have to buy assets from fannie and freddie. The FDIC is going to need more money. They just took over 2 more banks this weekend. There are over 90 more banks that they admit are in trouble. Since they failed to see Indymac "troubled", how many are there really?
The dollar is going to fall against gold, even if it rises against yen or euros. Nothing fundamental about the dollar has improved. The trade, treasury and current account deficits are all getting worse. Can the world continue to loan the U.S. ever increasing amounts of money? Will they?
- CaptBob
- 198 Comments
Jul 26 03:27 PMYour comments more succinct that the article, I've nothing to add--Cept. for you non-believers the alternative to gold used to be real estate--kind of took that one away didn't they?? Where you gonna park all your fiat dollars now?? farmland might be a good second choice.
- Bob Gary
- 24 Comments
Jul 26 03:46 PMwww.greenfaucet.com/co...
- waldipup
- 30 Comments
Jul 26 09:15 PMThe cost of a slice of pizza has risen more over the years due to dollar dilution than gold has.
But yet gold is fairly priced/overpriced?
The real question is how long can the gov't. keep printing money and still retain credibility.
No longer?
Another year?
Another ten years?
Nobody knows.
How can you keep bailing out financial entities for countless billions of dollars , fund social security , medicare/medicaid , and the myriad of other government expenses (including interest expense)
and just keep on truckin?
Anybody see the vertical increase in gov't. spending and borrowing over the last decade?
How do you justify that without an income equivalent?
But nonetheless , though the goldbugs (like me!) are fundamentally correct , (Larry Kudlow notwithstanding) ,
the real question is the timing , and being correct on the fundamentals but a decade or more off on the timing of how long a long term powerful government can keep on chooglin' on fumes could possibly be tantamount to being wrong "As Time Goes By".
- Did U Think The Ponzi Scheme Would Last?
- 148 Comments
Jul 26 10:43 PM- henarl
- 167 Comments
Jul 26 10:47 PM- phillips49
- 49 Comments
Jul 27 12:19 AMIf cash is a lousy investment and gold = cash, then gold must be lousy investment. Because gold is a commodity it is an unreliable proxy for cash. It is subject to supply and demand and is only worth what someone is willing to pay for it at a particular time. It is highly volatile over short periods of time and unrelaible over long periods of time. Yes, the example posed is extreme, but it is also real. By 1984 gold had declined to $331/oz. In December, 2002, gold was still only $346/oz. Cash invested at 4% interest would have yielded $668 in that time frame. Bread doubled in price in that same time frame. If bread could have been preserved, bread would have been a better investment than gold for those 18 years. A buyer of gold in 1984 would not have had parity purchasing power until 2007. 23 years is a long time to wait to get even. Neither the dollar, nor gold has any particular value except what it can be exchanged for. Money can be made in gold by some, by just plain luck in timing and by some pros with a good timing system and instant information. For the average person cash is a safer, more reliable position in a bear market. Gold today is 4.4% lower than it was on July the 15th. Cash is still the same value.
- chux08
- 38 Comments
Jul 27 12:12 PMPaper dollars losing value by the day due primarily to government mis-management, inflation, war and being printed out of thin air. Comparing fiat paper money to what the world has used as a secure store of value for oh what? Maybe 5000 years or so?? IS NUTS and if you can't see the insanity of your ways then maybe a dollar collapse (which IS coming) will wake you up. Trouble is by then, soon as YOU see what's happening, it'll be too late. Good luck!! If you're setting on a bunch of greenbacks, YOU'LL NEED IT!!
- marxbites
- 73 Comments
My Website
Jul 27 03:18 PM"An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other. . . . This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."
Thomas Jefferson
"If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered."
"The condition upon which God hath given liberty to man is eternal vigilance; which condition if he breaks, servitude is at once the consequence of his crime, and the punishment of his guilt."
- marxbites
- 73 Comments
My Website
Jul 27 03:39 PM"If there is no longer a viable government, gold will be worthless. Nobody will be willing to take your gold in exchange for food, clothing, weapons, or any other necessity of survival There will be no "money", only barter"
Gold and silver have always been viable commodity money of intermediary exchange freely chosen by traders over millenia as being the easiest to spot the depredations of king's and tyrant's attempts to clip or debase it.
Not to mention gold/silver's divisibility, high worth/weight, homogeneity, relative scarcity and low annual production usually lower than economic growth, and ergo enjoys growing purchasing power instead of fiat which depreciates our buying power.
My new 1972 VW was $1,989.00. A 1960 3/2 w/pool in Miami was $19K and today would be $200K.
Is it perfect? What is? But Gold & Silver money are what works best for trade and work best at restraining evil bankers and govt always out to rob the people via interest and inflation.
For the straight skinny on money & the FED:
Second Look at the Federal Reserve by Edward Griffin 1 of 7
www.youtube.com/watch?...
- marxbites
- 73 Comments
My Website
Jul 27 03:51 PMIn December 1921, the American industrialist Henry Ford and the inventor Thomas Edison visited the Muscle Shoals nitrate and water power projects near Florence, Alabama.
They used the opportunity to articulate at length upon their alternative money theories, which were published in 2 reports which appeared in The New York Times on December 4, 1921 and December 6, 1921.
Objecting to the fact that the Government planned, as usual, to raise the money by issuing bonds which would be bought by the banking and non-banking sector -- which would then have to be paid back with money raised from taxes, and with interest added -- they proposed instead that the Government simply create the currency it required and spend it into society through this public project.
This Thomas Edison quote made it plain in the following excerpt from The New York Times, December 6, 1921 issue ("Ford Sees Wealth In Muscle Shoals").
Here, the reporter reveals the Thomas Edison quote:
"That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt."
"Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 -- that is what it amounts to, with interest."
"People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work."
"That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost."
"But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good."
"The difference between the bond and the bill is that the bond lets the money brokers collect twice the amount of the bond and an additional 20 per cent, whereas the currency pays nobody but those who directly contribute to Muscle Shoals in some useful way."
"... if the Government issues currency, it provides itself with enough money to increase the national wealth at Muscles Shoals without disturbing the business of the rest of the country. And in doing this it increases its income without adding a penny to its debt."
"It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer, and the other helps the people."
"If the currency issued by the Government were no good, then the bonds issued would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious values of gold."
"Look at it another way. If the Government issues bonds, the brokers will sell them. The bonds will be negotiable; they will be considered as gilt edged paper. Why? Because the government is behind them, but who is behind the Government?"
"The people."
"Therefore it is the people who constitute the basis of Government credit. Why then cannot the people have the benefit of their own gilt-edged credit by receiving non-interest bearing currency on Muscle Shoals, instead of the bankers receiving the benefit of the people's credit in interest-bearing bonds?"
//////////////////////...
Rothschild Brothers of London communiqué to associates in New York June 25, 1863
"The few who understand the system, will either be so interested in its profits, or so dependent on its favors that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantages...will bear its burden without complaint, and perhaps without suspecting that the system is inimical to their best interests."
Americans are to soon old and too late smart thanks to govt and it's cheerleader beneficiaries in big biz, media & academe.
- silverwink
- 21 Comments
Jul 28 08:00 AMAre you just asking the question or do you want to give us your opinion !
Say something.............