It’s been a pretty uneventful week in the precious metals world. The kiwi dollar is pretty well unchanged from last week at .7982 this morning. Gold in NZ dollar terms is at $1715.32 down almost $30 per ounce from last week. Looking at the chart you could make a good argument for gold trying to eek out a higher low at just above NZ$1700. However $1800 remains strong resistance still.
Silver is at NZ$27.20 so only down ever so slightly on last week when it was NZ$27.38. Silver has really been just churning sideways and sits pretty much on the lows of April.
Waiting on the Bernank
With this sideways action, it seems all ears await the words of the great bearded one tomorrow. Unless you’ve been on a winter escape in the islands you’ll have no doubt heard all the talk about the US Federal Reserve “tapering” back its monthly US$85 billion in purchases. And that the Fed is in one of their regular 2 day meetings and so the world hangs on what will come of the meeting when Bernanke open his mouth tomorrow.
We were reminded by this piece on Zerohedge this morning, that this is not the first time markets have fretted over an “end” to QE.
We put “end” in quotation marks because a tapering back is of course not an end, but the talk lately almost makes out that the Fed is near to shutting off the hoses completely.
Our punt is that the Bernank will try to dampen the expectation of a reduction in its government debt buying coming anytime soon.
Well, we think this quote from Dan Amoss in the Daily Reckoning sums up pretty succinctly why they can’t withdraw from the currency creation.
“A key plank of the Fed’s exit strategy involves paying higher interest rates on excess reserves. This would have the effect of keeping the huge stock of recently printed money on deposit at the Fed, preventing it from entering circulation out in the real economy.
“While that may sound fine in theory, here’s the political problem: The Fed would wind up paying hundreds of billions of dollars in interest payments on its liabilities — after it has already locked in low rates on its assets by buying low-yielding Treasuries and mortgage securities. Like a bank in a flat yield curve environment, the Fed’s net interest income would vanish — along with its annual remittances to the Treasury. These remittances have cut the U.S. Treasury’s financing burden by hundreds of billions of dollars since 2008…
“If the Fed loses the ability to pay interest on excess reserves (which Congress granted in the 2008 crisis), it will have to use much more painful ‘open market operations.’ Tightening policy using open market operations would involve selling Treasuries and mortgages into a collapsing, bidless bond market while erasing previously printed base money supplies. You can imagine what a disaster this would be for the prices of all ‘risk’ assets. The rush to sell everything (stocks, bonds, real estate) would be unprecedented.”
Yes, when you are usually the main bidder at an auction, and then one day you don’t show up, odds are the price (of bonds) will fall (i.e. interest rates will rise). So odds are Bernanke manages to sit on the fence but maybe talks down slightly the prospect of the Fed exiting anytime soon as the US simply can’t afford for it to happen.
Regardless of what The Bernank says, we are also reminded that gold rose from 1999 to 2008 without any QE or even the discussion of it, so QE is not a necessity for gold to rise. Gold is really more closely correlated with levels of rising sovereign debt. Currency printing is rather a response to this high indebtedness and the need to keep interest rates artificially low.
So until the Fed comes up with a way to miraculously erase the US government debt overnight without setting off a domino collapse, we fail to see how the fundamental driver for gold can change dramatically.
This Weeks Articles:
We’ve got a few articles this week.
First up is the latest from our favourite Billionaire, Mexican Hugo Salinas Price.
We read everything Mr Salinas Price has to say as he has had some very well reasoned articles over the years. He is a deep thinker and this article offers further proof of that.
When it comes to finances and investing it pays to review your position regularly and see if anything fundamentally has changed to affect the reasons you took a position in the first place. The following article looks at the reasons for buying precious metals and whether they have changed recently along with the factors that have led to the fall in price…
Finally this one is for anyone holding or looking at buying shares in precious metals miners (we too feel your pain!). It outlines some of the pitfalls to look out for when buying shares in this sector, given the recent drop in price has affected the viability of many potential new mines.
Another Contrarian Silver Indicator
Last week we discussed a few factors that may indicate a bottom in silver is close to hand.
We just thought of another one yesterday that we have looked at for a gold a while back.
We headed over to Google Trends which looks at search (and news) volume trends in a given keyword. We plugged in buy silver and the following trend chart resulted:
You can see the peak in search interest for “buy silver” (100 on the chart) came in April 2011, right in line with the peak in the silver price. We currently sit at 57 for June 2013 (although only based on partial data) which is the lowest reading since April of last year which was 54. So if this month carries on as it is, with very little buying interest odds are this search interest could trend lower yet.
Of course a contrarian indicator is not (unfortunately!) a “bottom” indicator as the low search interest in April last year did not translate into a low in price, but we get the feeling we are getting closer. Granted a “feeling” is not exactly scientific!
How About the Gold/Silver Ratio?
A month ago we published a chart showing the gold silver ratio was at the top of what may be a long term downwards trending channel.
Meaning silver is rising against gold over the long term.
Any change over the past month?
Not too much. The ratio was at 61 back then and is now at 63 as silver has dropped slightly against gold since then but we are right at the top of the channel now. So this is also a good argument for why silver may be due to rise versus gold fairly soon.
Here’s Some More Contrarian Trend Data
Another piece of trend data we just read about on the Money Morning Australia site was the site traffic for silverprice.org has declined by 90% since the highs of 2011. Wow, now that is a fall!
Further evidence perhaps of just how unloved silver is these days with 90% less people looking at the price of it from 2 years ago. And perhaps further reason why now might be a decent time to grab a few bars?
If that’s you then get in touch.
1. Email: firstname.lastname@example.org
2. Phone: 0800 888 GOLD ( 0800 888 465 ) (or +64 9 2813898)
3. or Online order form with indicative pricing
Have a golden week!
Glenn (and David)
Ph: 0800 888 465
From outside NZ: +64 9 281 3898
This Weeks Articles:
|A Look at Gold & Silver in NZ, US & Aussie Dollars|
|2013-06-13 05:45:19-04Gold Survival Gold Article Updates: June 13, 2013 This Week: The USD dollar price of gold Where to for the price of gold in NZ dollar terms? We also cast our eye over the Aussie dollar gold price. How about Silver in USD versus NZD? This morning the Reserve Bank of New Zealand (RBNZ) […]read more…|
|Are the Gold Bugs Wrong?|
|2013-06-13 19:48:24-04When it comes to finances and investing it pays to review your position regularly and see if anything fundamentally has changed to affect the reasons you took a position in the first place. The following looks at the reasons for buying precious metals and whether they have changed recently along with the factors that have […]read more…|
|Copernicus, Galileo and Gold. Part I – Hugo Salinas Price|
|2013-06-13 23:24:42-04As we’ve mentioned many times before Hugo Salinas Price is “our favorite billionaire”. Unlike gold bashing Buffet and Gates, with his organization the Mexican Cixic Association Pro Silver, Salinas Price is actively engaged in trying to institute silver as money into Mexico, alongside paper money, rather than perpetuating the current debt-money paradigm. Below is his […]read more…|
|The Hidden Costs of Precious-Metals Miners’ Optimism|
|2013-06-17 19:02:39-04Are you an owner or thinking of becoming an owner in precious metals mining companies? The following outlines some of the pitfalls to look out for when buying shares in this sector, given the recent drop in price has affected the viability of many potential new mines. There may be plenty of upside to come […]read more…|
|Can’t Get Enough of Gold Survival Guide?|
|2013-06-18 01:27:21-04Gold Survival Gold Article Updates: June 18, 2013 This Week: The USD dollar price of gold Where to for the price of gold in NZ dollar terms? We also cast our eye over the Aussie dollar gold price. How about Silver in USD versus NZD? This morning the Reserve Bank of New Zealand (RBNZ) didn’t […]read more…|
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We are not financial advisors, accountants or lawyers. Any information we provide is not intended as investment or financial advice. It is merely information based upon our own experiences. The information we discuss is of a general nature and should merely be used as a place to start your own research and you definitely should conduct your own due diligence. You should seek professional investment or financial advice before making any decisions.
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