Silver Still Cheap After Dramatic Rally as Gold/Silver Ratio Forms Explosive Pattern
Commodities / Gold and Silver 2010 Aug 26, 2010 - 08:14 AM GMTBy: Adrian_Ash
THE PRICE OF GOLD and silver touched new 8-week highs in London dealing on Thursday, while the Japanese Yen retreated further and developed-world stock markets extending yesterday's rally on Wall Street.
G7 bonds slipped back, nudging yields higher from this week's record lows.
Crude oil pushed higher again, unwinding a third of this month's 7% drop at $73 per barrel.
"Base metals have [also] staged a rebound," notes Standard Bank's commodities team today, but "precious metals continue to push higher, adding weight to our assertion that equity markets and base metals are largely being driven by bargain-hunting rather than resurgent risk appetite."
"Gold is now open to the next leg higher from $1256 to $1265," says Russell Browne at bullion bank Scotia Mocatta in his latest technical analysis.
"Silver [also] made a dramatic move to $19.05...and the Gold/Silver Ratio dipped to 65.44, its third consecutive day moving lower."
A falling Gold/Silver Ratio – which has averaged 61 over the last 10 years – means it takes fewer ounces of silver to buy one ounce of gold.
The ratio "has focused itself ever more tightly into a potentially explosive arrowhead, right on a long-term mean," writes Sean Corrigan at Diapason Commodities in Lausanne, Switzerland.
"The intriguing thing is that gold outperforms [silver] when the stock market is weakening, so adding urgency to the question which way the ratio might go next."
Interviewed by Bloomberg today, "Silver is looking cheap and we're seeing strong investment demand for small ingots, as well as good industrial demand from solar-panel makers," reported Dick Poon, head of precious metals trading at the Heraeus refinery group's Hong Kong office.
Over on the currency markets on Thursday, the British Pound gave back half-a-cent of yesterday's jump towards $1.56, holding the gold price in Sterling above £800 an ounce – a six-week high broken for the first time on the way up in May.
Eurozone investors wanting to buy gold today meantime saw the price rise above €31,300 per kilo, gaining 3.2% from Tuesday's dip.
Money-supply growth ticked higher across the 16-nation Eurozone in July, the European Central Bank said, but lagged analyst forecasts at 0.2% month-on-month.
Ahead of monthly US employment data next week – a key mover recently for the Dollar and gold prices – new figures today showed both new and continuing jobless benefit claims slipping last week.
"Whilst we are getting any negative data, you can expect gold to benefit," said Investec Australia's Darren Heathcote to Reuters this morning in Sydney.
"I still don't see it really moving substantially lower in the short term."
Looking further ahead, and even on a 20% slump, "We do not believe the price can fall below $800 an ounce for long," says Edward George, senior economist at the Economist Intelligence Unit, speaking to The Guardian, "as over half of current gold mining operations are only profitable at a price of at least $1,000.
"If the price falls below this level for a long time they will simply stop producing, reducing supply and ultimately driving up the price again."
By Adrian Ash
BullionVault.com
P.S: As for the People's Bank buying gold, Beijing's reserve managers are very much the junior player in China's gold market. In the 30 months between Jan. 2008 and June 2010 alone, according to WGC data, private households bought more gold (1057 tonnes) than the central bank reports in its entire hoard (1054 tonnes).
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Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
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