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Commodities / Gold & Silver 2009 Jan 06, 2009 - 11:49 AM GMT

By: Mark_OByrne

Commodities Best Financial Markets Analysis ArticleGold has fallen again today and is down some 1% but continues to consolidate between $830/oz and $890/oz. Gold should remain well bid given the degree of international macroeconomic and geopolitical risk challenging us as we enter the New Year. The Middle East tensions continue to escalate and oil is up another 2.5% again today to some $50 per barrel again. Silver has outperformed even gold in the last 30 days and is trading very well – up nearly 17% versus gold’s rise of 12%.


Real concerns about bubbles in the US Treasury market and further sharp weakness in the dollar will likely see gold have its ninth positive year of returns. Fearful investors have bid Treasuries up to all time record highs with correspondingly record low yields. However, the macroeconomic and fiscal challenges facing Uncle Sam are of such a significant nature that investors will likely learn in 2009 that US Treasuries and government bonds are not the safe haven they perceive them to be. They have significant currency risk and astute observers are even warning of the possibility of a default. In such a scenario, gold will again come to play a fundamental role in the international monetary system and we would likely see gold at least reach its inflation adjusted high of some $2,400/oz in the coming years.

Silver is massively oversold – probably more oversold than any other commodity or stock market in the world and yet its fundamentals are arguably as sound now as they were before.

Industrial demand for silver is set to fall admittedly but that will be more than made up for by significantly increasing investment demand. Also importantly the supply of silver may fall – silver supply coming primarily from the by product in base metal mines – many of which are failing due to the collapse in base metal prices.

Silver’s average price in Q1 08 was some $18 and this will likely be surpassed in 2009.

It is important to remember that silver’s average price in all of 2008 was some $15/oz and thus silver is currently trading at some 36% below its average price in 2008.
Most importantly, there is less refined silver in the world than gold – a fact that most people simply cannot get their head around and fully understand due to gold being currently some 77 times more valuable than silver.

Above-ground Inventory (billions of ounces)

World , Population, Year, Gold, Silver (Billions)

1940-50 2 8-10 2..5

1980 3.5 3.5 4

2005 5 1 6

2030(est.) 7 0 -1 8

(Inventory statistics taken from World Gold Council, the Silver Institute, and others, Population data from US Census Bureau)

Silver is likely to return back to its recent highs in 2008 above $20/oz and there is a possibility that silver could reach well over the nominal 1980 high of $50/oz in 2009 (as gold has already comfortably done with an average price of $870 in 2009).

By Mark O'Byrne, Executive Director

Gold Investments
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Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

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Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

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