Is the bottom in for Gold and Silver

This week:

• Useful website updates
• Is the bottom in for gold and silver?
• Word of the week: “Grexit”
• Gold and silver in backwardation
• What is the Gold Offered Forward Rate?

It’s been a week of action in the markets but before we get to that, we’ve had a few updates on the website over the week that might be of interest to you…

1. Indicative pricing on the order page

We’ve updated our order/quote page so that it has indicative pricing for our top 6 most popular products every day.

You can find this on the top menu on the website, click on “Products/Order Now” or on the price banner at the top as seen below:

Then just enter either the dollar amount or the number of ounces/kgs of any product you’d like a quote for.

2. Daily prices email alert

In case you missed yesterday’s email we’ve also just kicked off a daily prices email alert.  If you’d like a simple way of tracking the daily movements of NZ dollar priced gold and silver then go here and subscribe to get an email every weekday notifying you of the NZD and USD spot prices.  Plus the prices to buy our 6 most popular products.

3. Live NZD silver price charts

We’ve also added a series of NZD silver charts to the prices/charts page from 24hrs to 20 years. Scroll halfway down the page to see them.  Useful to see both short, medium, and long term trends of silver in NZ dollars.

Remember these charts are of the NZ dollar spot silver price.  These charts aren’t what we use to generate gold and silver quotes.  Those come directly from each supplier we use and they can vary from supplier to supplier.  Also note that the prices on our product page and on the banner at the top of the website are spot plus the refining mark-up so these always are more than the spot prices in the charts.

Now that the housekeeping is done, on to the week’s happenings…

Word of the week: “Grexit”

One “great” things about this financial crisis is the interesting new words and phrases we’ve had introduced into the lexicon!  Now we have a new addition – “Grexit”.  Quite suddenly it seems the possibility of a Greek exit from the Eurozone has become a real possibility.  Beats us why it’s taken this long.  Always seemed pretty likely but it will be interesting to see what the various governments of Europe come up with in the coming months.

And speaking of slow learners, you’d wonder why it’s taken the people of Greece this long to start removing cash from their banks – the writing has been on the wall for some time and you’d think you’d be getting your Euros out of Dodge or at least out of Dion some time ago.  We’ve read plenty this week about these runs spreading to Spain and even something about withdrawls in France on Zerohedge  form memory but didn’t make a note of that link sorry.

Regardless of what happens with Greece, our guess is that the death of the Euro isn’t around the corner just yet.  The odds are that when things get really bad the Euro will do the exact opposite to what most expect and bounce higher, against the US dollar at least.  If you want a good summary of what’s going on in Europe and what may come next, Chris Martenson does a good job of laying it out here.

Is the bottom in for Gold and Silver?

As we mentioned might be a possibility last week, both gold and silver in NZ and US dollar terms bounced higher and are now up quite noticeably from our email last week.  Was that the bottom?  You should know our answer by now – Who knows?!!

We don’t place massive faith in technical analysis but plenty of people do so we reckon you can at least make some guesses based upon charts.  Looking at the USD chart of gold we seem to have triple bottom with the price bouncing off $1525 for the third time in the past 9 months of this correction.

The NZD chart beats that though, as by our counting it’s bounced off our old friend $2000 five times in the past 9 months.  That seems like pretty good support to us.

Taking a glance at silver now.  The USD chart also appears to show something looking a lot like a triple bottom at $26/$27.  The RSI indicator at the top showed silver was oversold and so the price bounced after this.

Checking out NZD silver we also see what looks like a triple bottom forming at $34/$35.

We said at the start of the year if we had to guess we may have seen the lows for the year in silver over New Year.

We’re on track so far, of course this could be a head fake and we could see a further fall yet.

But we do like that fact that the precious metals are off the radar of the mainstream and there is plenty of bearishness around gold and silver still.  That probably means we are much closer to a bottom than a top.

But remember what you paid for these thoughts (nothing!) and take them for what they are worth!  You have to make up your own mind about when to buy.

Gold and silver in backwardation

This might be a bit advanced if you’re new to precious metals but it is a very important concept to understand.  At the very least it could raise some questions and get you to do a bit of digging. In an article a week ago Keith Weiner wrote how gold and silver are in backwardation.

Put simply this is when the price of a futures contract is cheaper than the current spot price to buy gold/silver now.  This shouldn’t happen as the big traders should snap up this free money.  But it has and means no one is prepared to give up physical silver and gold at the current price.

If you want a bit more of a simple explanation of this backwardation business, check out the end of this article from the start of this year.

Also in March we posted an article from Keith which lays out much better than we could exactly what backwardation is, what it means and why it’s so important.

What is the Gold Offered Forward Rate?

The other important must read article we came across this week and somewhat connected to the concept of backwardation was from Greg Canavan at the Daily Reckoning Australia.

It deals with a little discussed topic of the Gold Offered Forward Rate or GOFO rate.  Here’s an excerpt but you really should read the whole thing.

Riding The Gold Bull Market

That’s why this long bull market in gold is so relentless. As the global financial system continues to decay, physical gold flees the ‘system’. Rising prices are necessary to bring some of that gold back into the system. This is necessary to keep the US dollar based monetary arrangement going.

If gold wasn’t such a crucial part of global finance, it wouldn’t be such a huge market. Gold is crucial…regardless of what Warren Buffett or Ben Bernanke say.

The day when physical gold leaves the banking system – for good – is the day when the paper dollar based system dies. The GOFO rate could give us important clues as to when that will happen. As in the past, the gold ‘price’ may fall at the same time.

But at that point, the value of physical gold will be many multiples of the current price. We wouldn’t be surprised to see trading halted and gold repriced much, much higher over the course of a weekend. As it has done throughout history, gold will preserve your wealth. But you must focus on value, not price if you want it to do so.

Holding on Tight to Physical Gold

This current pullback in the gold price has not been as severe as past episodes. The GOFO rate did not go negative. But it is suggesting that physical gold is increasingly in demand. The credit worthiness of the whole system is now coming into question.

Physical gold, the only asset without counterparty risk, increases in value at such a time…regardless of what the price tells you. With gold rising today, it’s a sign the ‘system’ needs a higher price to entice more real bullion into the market.

This is a process that moves gold from the weak hands to the strong hands. So if you’re thinking of selling your gold…be strong. Think about what you’re swapping it for. You’re going short on 6,000 years of history and long on a 41 year paper and credit based experiment.  Source