Three Reasons Silver Is Likely to Shine

Editor’s Note: This article was written by Kevin Grewal, editor of SmartStops.net.

Although gold continues to grab most of the attention in the precious metal world, its less glamorous sister, silver, may be more appealing, and for good reason.

First off, silver has many more uses than gold. It’s used for numerous industrial purposes and nearly 55% of total silver fabrication is used for industrial purposes. Silver is commonly used in the electronics space and can be found in plasma display panels and printed circuit boards, as well as in the lining of refrigerators, for food storage containers, and for water purification. Additionally, the metal can be used as an antimicrobial to fight bacteria and as an antiseptic to treat fungal infections. Silver’s industrial uses even span to the solar energy industry. As economies around the world continue to expand, the industrial demand for silver will likely follow.

Another force that’s likely to support silver is that valuations appear to be strong. In a nutshell, silver is cheap and depressed on a historical basis, when compared to its sister metal, gold. Gold is trading much higher than its long-term ratio of 16 times the price of silver, indicating that there’s plenty of room for silver prices to run. Additionally, silver is nearly 70% below its all-time high witnessed in 1980 and well below its near-term high of $21 per ounce seen in 2008.

Lastly, diminishing supply is likely to bolster the metal. According to a study conducted by the United States Geological Survey, silver is nearly twice as rare as gold in the long term because it’s not recycled at the same rates as gold and at current consumption rates all of the silver that’s in the Earth’s crust will diminish away in the next 25 years.

A combination of these factors will likely provide support to silver prices and the following ETFs are likely to reap the benefits:

• The iShares Silver Trust (SLV), which physically holds silver bullion and closed at $17.24 on Thursday.
• The PowerShares DB Silver Fund (DBS), which holds futures contracts in silver and closed at $31.14 on Thursday.
• The ProShares Ultra Silver (AGQ), which seeks to gain twice the performance of silver bullion and closed at $55.55 on Thursday.
• Global X Silver Miners ETF (SIL), which gives exposure to companies involved in mining, production, and exploration of silver. SIL closed at $14.36 on Thursday.

When investing in these equities, it’s important to consider factors that could potentially hinder the price of silver like an unexpected surge in the dollar. A good to way to protect against these factors, as well as against the inherent risks involved with investing in equities, is through the use and implementation of an exit strategy that triggers price points at which an upward trend in gold could potentially be coming to an end.

According to the latest data at SmartStops.net, the price points for the aforementioned ETFs are: SLV at $16.80; DBS at $30.86; AGQ at $54.70; SIL at $13.31. These price points fluctuate on a daily basis and reflect changes in market conditions

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Gold bugs like to think they have all their bases covered. The price of the precious metal can only go up whether the economy is facing inflation or deflation, or so they claim.

But beyond the lack of evidence for the metal’s value thriving in either scenario, gold investors now face a situation that even they can’t put a positive spin on. Major gold vendors like Goldline are coming under rapidly rising scrutiny for steering customers into coins with markups of 35%.

Salespeople imply that investors could exploit a loophole for antique coins to avoid a government confiscation of gold that supposedly took place during the Great Depression. But investors who try to sell the coins see a sharp drop as the market value tends to be less the huge profits pocketed by the vendor.

Fear-Mongering and Conflicts of Interest

Fear-mongering by those who, like Fox News host Glenn Beck, have lucrative deals with gold vendors has been causing angst about conflicts of interest for months. But reports of customers getting put into investments that lose a third of their value upon purchase are causing a new sense of alarm.

A recent episode of ABC’s Nightline, for example, profiles a 63-year-old investor who got only $2,900 for coins he paid $5,000 for just months prior to selling them. Authorities in Los Angeles say they have received over a hundred customer complaints and have launched an investigation of Goldline and Superior Gold Group.

Adam Radinsky from the Santa Monica, Calif., City Attorney’s office told ABC that there have mainly been two types of complaints: customers who said they were lied to and misled into their purchases of gold coins, and those who said they received something different from what they had ordered.

Prices Could Turn Down Sharply

While Goldline executives like to advertise that they have $500 million in sales, it remains unclear what portion of these come from items like coins with steep markups. But if consumer sentiment sours, the momentum in gold prices could turn much more violently than even other volatile investments like stocks and real estate.

Unlike those assets, gold generates no income, and judging its worth is a guessing game. This helps boost prices when they’re on an upward swing. But when the tide turns, there’s no measure like price-to-earnings ratios with stocks, or rental-versus-purchase calculations with houses, to help provide support against a price crash.

Despite the all-encompassing claims made by its advocates, gold may turn out to be a good investment for only one scenario — when gold prices just happen to be rising.

LONDON (Commodity Online): Gold prices that rallied to $1,265 in June has since then failed to attain that levels and Natixis Commodity Markets expects potential for further weakness as some of the arguments for holding gold has become less relevant. This could push prices down to $950, Natixis said.

With the increase in supply and suppression of fabrication demand at current high prices, this requires a constant stream of investment inflows to balance the market.

Natixis Commodity Markets said thatarguments supporting investment are steadily being eroded. The sovereign debt problem is slowly becoming less of an issue, or is already priced into the market, and as such the need to hold gold as an alternative safe haven asset is being progressively reduced. Another bearish factor is producer de-hedging, which having averaged around 350 tonnes a year for the period 2006-09 is set to fall to trivial levels due to the much reduced scale of the outstanding hedge book.

For the Platinum Group Metals (PGMs), the auto sector, particularly in the developing economies, should support some modest gains in average annual prices for platinum and palladium.

In 2009, mined output rose by an estimated 6.5%, and we would expect this to rise further in 2010 and beyond. In combination with potential net selling from investors, higher mined output will lower the equilibrium price at which jewellery demand can balance the gold market.

“We forecast a slide in prices in the third quarter, perhaps accelerating in the fourth quarter, with the market at some point this year approaching the $1,050/oz mark to give an annual average of $1,125/oz. With gold’s negative fundamentals being deep-seated, further weakness in 2011 could take the average price down as far as $950,” Natixis said.

Silver prices will track gold, generating average of $17.75 per oz.A more bullish base metals market in 2011 is expected to give some support to industrial silver demand, justifying an average price only a little lower at $15.50 per oz, avoiding the more overt weakness likely in gold prices. As a result, the gold:silver ratio should narrow considerably to an annual average just over 61, taking it closer to its longer term average in the high fifties.

“We expect global automobile production to maintain its recent strong growth driven by the emerging markets, despite the end of the scrappage schemes in a number of the mature regions. With automobile growth being dominated by petrol-driven cars, and palladium continuing to make in-roads into the diesel sector, we continue to favour palladium over platinum from a demand perspective, ” Natixis Commodity Markets said.

The supply side, especially in South Africa, should offer some support with the potential for electricity supply bottlenecks, labour disputes and safety issues all to impact negatively upon the supply of platinum in particular. “We therefore project a rising trend in both pgms’ prices over the rest of this year.”

“Overall, we expect platinum prices to average $1,600/oz for 2010 as a whole, with the average palladium price at $465/oz. Next year, ongoing increases take our forecast for platinum to an average of $1,700/oz and palladium to $510/oz,” Natixis said.

Long-term platinum fundamentals looking good – Johnson Matthey

While prices may have fallen around 11% in recent months, there are indications that platinum could be bottoming out.

Author: Geoff Candy
Posted:  Tuesday , 27 Jul 2010

GRONINGEN - 

The price of platinum has fallen around 11% since hitting a 21-month-high in late April, largely on the coat tails of the sovereign debt crisis in Europe.

But, according to Johnson Matthey’s GM for Market Research, Peter Duncan, both the supply and demand side of the market would suggest the metal is likely to maintain its current level, if not go higher during the course of the rest of the year.

Speaking on Mineweb.com’s Metals Weekly podcast, Duncan declined to give an actual forecast but, said, “Supply at best is going to grow a little bit – it’s certainly being hit by a number of issues and it’s going to struggle to grow at a fast rate”.

On the demand side, he said there is some uncertainty as to whether we are likely to experience a double-dip but, added, ” I would certainly expect demand to be stronger this year in all the industrial applications than it was last year. Jewellery remains quite firm and investment demand likewise seems to be quite sticky.

“So the demand side seems to be holding up quite well and all of that points to a market that is moving closer to balance than last year.

Supply Side:

The big story over last week was the directive out of the South African government’s department of mines about the bord and pillar mining technique and, more specifically, about the space between the pillars. The directive was aimed primarily at Aquarius Platinum, which uses the technique more than most and had just suffered two fatal accidents at its mines.

While the knee-jerk reaction from the market saw Aquarius’s shares plummet, it has subsequently recovered some of its value and, according to Duncan it is too early yet to say what the actual impact of the directive will be.

“The producers themselves are still struggling to interpret exactly what’s required and how they’re going to handle it. But if you look at the overall production from the area that’s immediately affected, we’re talking about platinum and chrome mines in the North West region – the Western Bushveld, south and east of the Union Section – so that amounts to a total annual production of platinum of just under half a million ounces.  So it’s going to be a percentage of that.  I’ve heard different figures of up to 20%, 25% and down to virtually nothing – the 20%, 25% is probably an exaggeration and more likely we’re going to see [a drop of] 10% to 15% – it’s a bit early to say but I’d be very surprised if it were more than 100,000 ounces a year”.

Over and above the potential impact of more pillars underground, Lonmin too came out with an announcement saying that its refined platinum sales were down almost 50% and, as Duncan says, there are certainly a lot of one off announcements in the platinum sector: “We always call them one-off but they seem to happen every year, don’t they.  There’s always some little bit of bad news that dents production”

But he still expects some modest growth in overall South African platinum supply.

Asked about other sources of supply, he says Russian and North American supply is expected to remain fairly consistent.

“The growth potential, all other things being equal, is in Zimbabwe where there are still significant reserves of platinum and where they’re growing in percentage terms, quite strongly in the last few years – but obviously that has its own potential difficulties going forward.”

Demand:

While auto-sector demand for the metal still makes up around half of current usage, Duncan points out that last year there was a dramatic fall off in auto usage and jewellery rose to fill the gap, becoming over 40% of the total market.

And, he believes that there is still a long way to go on the jewellery front. ”

“The biggest market by far for platinum jewellery is China – although demand has fallen off a bit this year – that’s hardly surprising because we saw a large period of stock building in the first half of 2009 which is unlikely to be repeated.  But the underlying demand in China is still very strong, and almost irrespective of price, we see that that has a long way to go before it approaches any ceiling,” he says.

From an autocatalyst point of view, which remains the major source of platinum demand, Duncan says the most important thing to focus on is the diesel car’s share of the European market which dipped quite significantly last year.

“What’s really going to be important going forward, is how quickly the diesel share of the market recovers. We’re certainly seeing signs of diesel recovery so far on the fleets, which are typically dominated by diesel, so those are starting to come back in.  So really, going forward it’s a case of European diesel share recovery driving platinum demand and at the same time, in the same way that the industry ran down on the stock of vehicles – production fell last year by a lot more than sales fell.  This year it will be the opposite – we’ll probably see a build up again of car inventories and of course that will drive demand for PGMs and catalysts, so overall a fairly positive picture but seeing into the future at the moment is quite difficult.

The third prong of the demand trident is also the youngest – ETF or investment demand. Here Duncan admits that there is very little history on which to judge the way that they’ll behave to movements in price.

But, he adds, “So far we’ve seen significant growth in ETF investment this year, after the launch of the US-based ETF fund. How much of that of course is pent up demand and how much reflects what demand will do going forward is a little bit more difficult to say. 

“Certainly the demand – the rate of growth in cumulative holdings has fallen, but there’s no real evidence here that people haven’t taken any profit and in fact the cumulative demand in ETFs has just grown irrespective of what price has done – so we saw no or very little exiting of positions when the price dropped recently and the curve has continued to go smoothly upwards.  ETF investment – difficult to say what’s going to happen long term but so far, it’s looking fairly sticky, as we say – it’s looking to hold onto the platinum that it’s bought

Article courtesy of www.mineweb.com

Coin dealers feel stung by tax reporting rule

People who deal in precious metals could find themselves under tighter government scrutiny because of an obscure provision tucked inside national health care reform – and they are not pleased.

Signed into law March 23, the Patient Protection and Affordable Care Act has a revenue-generating component intended to collect as much as $17 billion in uncollected taxes over the next 10 years. Those who buy and sell gold and silver coins are just learning about new rules requiring them to use IRS Form 1099 to report transactions exceeding $600 during a calendar year.

“I am sort of reeling from that sort of a revelation. It would ruin my business,” said Stockton’s Bob Hallam, owner of Avenue Coins and Currency on the Miracle Mile.

He learned this week about the strange provision in the health care bill in an e-mail from a friend.

Although all small businesses are potentially affected by the law, the loudest outcry has come from coin dealers. An ABC News story has prompted many to call for the rule’s repeal.

Some members of Congress have responded and are trying to get the provision – set to go into effect in 2012 – removed.

“I signed up 10 new co-sponsors just today because of the article,” said Rep. Dan Lungren, R-Gold River, who introduced legislation to repeal the rule in April.

Lungren’s bill, HR5141, has been languishing in the House Ways and Means Committee since then, even though it has more than 100 co-sponsors.

“We’ve got people calling us now. We are getting calls from all over the country from folks that deal in gold coins.”

Lungren said the rule is offensive, because it assumes that many people who sell goods to businesses are cheating on their taxes.

“I call this the universal snitch act,” Lungren said.

Form 1099 is used to track and report miscellaneous income associated with independent contractors or self-employed individuals.

This tax code change, according to some experts, would help pay for national health care reform.

Expanding the form to cover all goods purchased by businesses goes far beyond the original purpose of the IRS form, Lungren said.

“Everybody you buy a single thing from, you are supposed to report on them,” Lungren said.

Even though the reporting rule is not a new tax, the increased paperwork burden and the prospect that some customers may be unwilling to provide a Social Security number and birth date to sell gold are problems enough, coin dealers say.

Some sellers also worry that the legislation gives the government the capacity to track the buying and selling of precious metals.

Historically, gold has been seized by certain governments during severe economic downturns.

In April 1933, Executive Order 6102 was signed by President Franklin D. Roosevelt, requiring U.S. citizens to deliver all but small amounts of gold to the Federal Reserve.

Berlene Horne, office manager for Calaveras Coin and Collectibles in Angels Camp, said the new law has the potential to shut down her business. She said the shop would have to add an employee to its five-person staff just to keep up with the paperwork.

Horne said employees at Calaveras Coin and Collectibles are telling customers about the reporting rule.

“I would guess they are calling their senators and stuff,” she said.

In Stockton, Hallam said he’s also hoping the reporting rule will be repealed.

Otherwise, he predicted, it will drive gold and coin transactions underground.

“It will immediately establish a black market,” Hallam said.

Contact reporter Dana M. Nichols at (209) 607-1361 or dnichols@recordnet.com. Visit his blog at recordnet.com/calaverasblog.

UPWARD TREND IN GOLD PRICE DURING SECOND QUARTER 2010 BACKED BY STRONG FUNDAMENTALS, SAYS THE WORLD GOLD COUNCIL

Platinum prices expected to gain this year, albeit slowly

As economic recovery continues gradually, analysts expect the resultant rise in demand to push up prices of the metal used predominantly in autocatalysts

Author: Jan Harvey (Reuters)
Posted:  Thursday , 22 Jul 2010

LONDON (Reuters) - 

Analysts see platinum prices rising as a gradual economic recovery leads to increased demand for the autocatalyst metal, but some of the euphoria that lifted forecasts earlier this year has evaporated after a hefty correction in May.

Platinum is now seen averaging $1,600 an ounce in 2010, a Reuters poll of 40 analysts, traders and fund managers showed, up from a January forecast of $1,553.75 an ounce.

But the latest forecast is well below that shown in a smaller poll conducted ahead of London Platinum Week in May, during which platinum and palladium, which had outstripped gains in other precious metals early in the year, slipped sharply.

That poll of 26 analysts gave a median forecast of $1,650.

While platinum bulls are pinning their hopes on expectations for an economic recovery, some caution remains after a spate of gloomy U.S. data. Prices slid in May as recovery hopes faded and fears of a double dip recession came to the fore.

Those fears are reflected in analysts’ forecasts for gold.

But analysts still expect to see broad global economic growth lifting car sales, in turn raising demand for platinum and its sister metal palladium.

“Although bearish sentiment is hindering upward price momentum, we expect auto demand to rebound this year and glass and chemical usage to recover as the economy recovers,” said Barclays Capital analyst Suki Cooper.

“Supply disruptions have been limited in the first half of the year, (but) as wage negotiations unravel and safety-related stoppages come under scrutiny in South Africa, we believe supply growth is set to be constrained.”

In the remainder of 2010, prices are expected to average $1,580 an ounce in the third quarter, rising to $1,630 in the last three months of the year. Spot platinum was trading just above $1,500 an ounce early on Wednesday.

In 2011, the median platinum price forecast climbed to $1,700 an ounce.

Platinum prices rose 19 percent in the first four months of the year, but failed to hold onto those early gains.

“The long run-up in platinum’s price was largely driven by investment demand, helped along the way by a recovering economy,” said BNP Paribas analyst Anne-Laure Tremblay.

“The recent correction came about as doubts emerged as to the solidity of economic growth on one hand, and receding investment demand on the other.”

PALLADIUM SEEN RISING

Palladium prices are seen averaging $472 an ounce this year, up from a January forecast of $434 an ounce but well below that shown in the pre-Platinum Week poll of $488 an ounce.

In the third quarter prices are expected to average $460 an ounce — above their current level of around $445 — with forecasts rising to $494 an ounce for the fourth quarter.

Palladium strongly outperformed other precious metals in the first quarter, rising 17.6 percent against gold’s 1.6 percent and silver’s 3.9 percent. It fell 7.4 percent in the second quarter, but remains up 14.7 percent year-on-year.

In 2011, palladium is expected to average $519 an ounce, up from a January forecast of $480 an ounce and a pre-Platinum Week forecast of $500 an ounce, due to expectations for improving demand.

“As the economy improves, demand for palladium from fabricators will add further support to prices in 2011,” said Rohit Savant, an analyst at CPM Group in New York.

“Relatively new investment vehicles such as ETFs have added additional support to palladium prices in recent years and are expected to continue doing so in the near future.”

New platinum- and palladium-backed products launched in the United States earlier this year by a unit of London’s ETF Securities helped support expectations for stronger demand.

Inflows of both have steadied in recent months but holdings remain relatively firm. The U.S.-based ETFS Platinum Trust now holds just under 304,000 ounces of metal, while the ETFS Palladium Trust holds just over 780,000 ounces of palladium.

(Additional reporting by Pratima Desai in London, Ruchira Singh in New Delhi, Rujun Shen in Shanghai, Frank Tang in New York, Nicholas Trevethan in Singapore; Editing by Sue Thomas and Veronica Brown)

By Debbie Carlson of Kitco News
Chicago — (Kitco News) –The dog days of summer have the gold market in its teeth, keeping prices in a stubborn range and not shaking loose of its prey.

Without a catalyst gold prices could very well hold in its roughly $100 range between $1,170 and $1,270 area. The first catalyst, however, could come in the form of selling, rather than notching a new high.

The events that have drawn investors to gold have lost their urgency: concerns about sovereign debt are beginning to subside; currencies like the euro are stabilizing; inflation is less of a worry. So far, nothing shocking has leaked so far from the stress tests the European Central Bank are conducting on banks there. Without fundamental news to entice buying, gold prices are drifting.

Gold’s meandering has caused the investment crowd to start to lose interest in owning the yellow metal at these levels. Without buying by investors, gold’s price could start to creep lower by default. And that seems to be what is happening right now.

“We’re starting to see some liquidation in the ETFs, pruning back some of their longs,” said Frank Lesh, futures analyst at FuturePath Trading.

In the futures market at the Comex division of the New York Mercantile Exchange, he said some traders are starting to sell rallies and are trying to play the market from the short side. He stressed the positions were “nothing definitive” but that some traders were putting on shorts simply because the market is drifting lower.

Sterling Smith, commodity trading adviser and market analyst at Country Hedging, said there’s been some selling of gold call options in the futures market above the market.

How the market acts in the coming days could signal whether the current floor can hold. The $1,170 area for the August futures is a big trendline, Lesh said. If that trendline is seriously broken, prices could crumble to $1,100. He said there are a lot of sell stops under the market that would be tripped if prices spiked down.

That could be a significant win for the bears, if it happened. He noted $1,100 is an important level because that’s where prices ended 2009. That means anyone who bought this year would be left with a losing position. Conceivably a break of $1,100 could bring gold to the $1,000 area.

Smith said he doubted the small speculators who have bought gold on this year’s rally would look to exit positions. “They’re a very stubborn lot; they like to hold gold through thick and thin,” he said.

He also added if prices sunk to the $1,120-30 area, it might entice some jewelry fabricators back into the market to get some coverage. Jewelry demand has been a casuality of this year’s investment-driven price rise.

In addition to possible technical pressure, Smith said if the stock markets were to fall sharply, that could pull gold with it. On heavy down days, gold has fallen in sympathy with equities. Poor economic news could also trigger a break, he said.

On the upside, strong economic data or something that might signal inflation could push prices back to their highs, he said. Otherwise, renewed problems in Europe, such as a flare up for Hungary as it tries to deal with its debt situation might eventually cause the euro to buckle. Hungary still uses its own currency, the forint, but problems there could spill over to the euro. He also said the rally in the euro might have run its course. There is some sense the gains in the euro came from ideas the common currency was oversold after its recent losses versus the dollar and due for a rebound. Short covering was likely a factor in its upswing.

Commerzbank sees the third quarter average price for gold at $1,150 and back to $1,250 by the end of 2010 and into the first quarter of 2011 and at $1,350 by end of 2011. The bank, in a Wednesday research noted, agreed the doldrums have struck gold now and expects this consolidative trend to last.

In the short-term prices could decay, but longer-term they remain bullish on gold. They said selling of gold scrap fell 43% in the first quarter of 2010. “As incomes rise, households are obviously less obliged or willing to sell gold in order to obtain liquidity,” the bank said.

Mining is likely to increase, but the activity will likely come from China and Russia, which probably will put that in storage in its own central banks. India could purchase its gold from the International Monetary Fund as it has done before.

“As is evident from India’s central bank’s gold purchases in the autumn of last year at record prices of $1,045 on average at that time, India will not be put off either by a high price level,” the bank said.

By Debbie Carlson, contributing to Kitco News;dcarlson@kitco.com

Thursday, July 22, 2010

American Palladium Eagle Bullion Coins Sought

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