Volatility in the silver market

Quantitative easingThe latest volatility in the silver market was caused by the Fed announcement on Wednesday that if their economic objectives were met with respect to economic growth and unemployment in the United States they may begin to “taper” or reduce the amount of stimulus the Federal Reserve pumps into the world economy every month. (Currently $ 85 000 000 000 or R 876 000 000 000) This is enough to give each of America’s 313 million citizens R2798.72 every month.

We believe that the most important words in his statement was “if economic objectives are met” The Fed does not have a very good track record when it come to predicting the direction of inflation and US growth projections.

We believe that none of the fundamentals that have driven the silver and gold bull market to date have changed and we will see significantly higher prices in both silver and gold in the medium to long term.

Some of the fundamental that support the precious metals market:

  • Money printing by central banks in USA, Europe, Japan and others.
  • Zero or near zero rates of return in many parts of the world which increase investor demand for gold and silver.
  • Cost of Gold production for the majority of the world’s gold miners is between $1200 and $1300. This should create strong resistance at current gold price.
  • Chinese and Indian central bankers have large appetites for gold and step into the markets aggressively when gold moves lower.

At some point we believe we will see a disconnect between the physical Gold and Silver prices and the “paper” gold and silver prices. At present the “tail wags the dog” inasmuch as the paper markets like the Comex are dictating the price of the physical gold and silver markets. We have seen a steady divergence between the paper silver prices (Comex / Futures) and the physical prices of silver as can be seen on Internet auction sites like Ebay and Bid or Buy. Currently Ebay physical silver prices are trading at a premium of between 33.3 % and 42.6 % to the “paper” spot metal prices.

In light of the above comments we believe that Silver and gold as these levels provide a very attractive risk reward ratio. With Silver in Rand terms at or near it’s 52 week lows the question silver investors need to ask is “Have the world’s central bankers resolved all of the problems that were the catalyst for the 2008 financial crisis and have any of the fundamentals that have been driving the precious metals bull market changed significantly enough to warrant the current silver price?”

We believe that silver investors should try and ignore short term noise from the Fed and concentrate on the long term fundamentals driving the gold and silver markets.

In the words of the veteran precious metals trader Jim Sinclair who has an excellent track record for successfully predicting price movements in the precious metals markets.

Therefore central planners must make, via paper gold, every effort to make it say, “All is Ok.” For this reason I intend, knowing the system is in collapse, to buy gold with every resource I have at my disposal today and tomorrow.
I suggest those of stout heart do the same.
To the others who are committed to their limit, hunker down one more time knowing that in no more than the summer a brand new and most powerful bull market in gold will be at hand.

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