Silver Investment Has More Potential Than Gold In 2017
Neils Christensen – While expecting gold prices to rally to $1,400 an ounce in 2017 on continued investor demand, ETF Securities looks for silver to outperform as industrial demand drives prices.
In a recently published report, analysts at ETF Securities said that they see silver prices trading in a range of between $22 and $24 an ounce in 2017. With silver prices last trading Wednesday at $17.70 an ounce, that would mean at least a 24% gain for the precious metal.
ETF Securities’ gold-price target of between $1,400 an ounce and $1,450 would represent a gain of 10% from the precious metal’s current price of $1,272.60 an ounce.
“We are constructive on gold next year but we see more potential upside for silver given its high correlation to the industrial-production cycle, which be driven by the continued recovery in the global economy,” said Maxwell Gold, director of investment strategy at the firm, in an phone interview with Kitco News.
The investment firm noted that there is an 80% correlation between gold and silver and while silver has benefited from gold’s unprecedented investor demand, silver’s fundamental supply-and-demand picture is what will drive the price higher next year.
Gold noted that his firm is expecting to see strong silver demand in electronic components, especially as companies use the metal as a substitute for more expensive options like gold — also known as thrifting.
He added that the solar sector, especially in China — now the global leader — will to continue grow. At the same time, ETF Securities expects to see a drop in supply as mining production falls as a result of lower capital expenditures.
“We do see the importance of silver’s investor demand, but overall silver is much more dependent on supply-and-demand factors,” he said. “We see constructive fundamentals for silver going forward both by continued expansion of global industrial activity and reduced mine activity.”
ETF Securities’ gold and silver price forecasts would push the gold/silver ratio back to historic norms at 64. The ratio was trading Tuesday around 72, its highest level since early June.
Both gold and silver have been two of the top assets so far this year. Investor demand as a result of global negative bond yields have pushed gold prices up 19%. Silver, because of its higher volatility, is up 28% since the start of the year.
How Much You Could Make From Silver Investment
Ben Traynor – Simon Popple explained why a specific subset of silver miners could soon find themselves in a very enviable position immediately after the US election. Practically overnight these guys could become the companies every silver investor wants to own. There’s potential for a huge, rapid move here.
But that’s not what grabbed me.
What grabbed me is that this sector has solid fundamentals whatever happens in America two weeks from now.
To show you what I mean I’ve knocked up a quick chart below. It shows previous silver bull markets and the kind of percentage gains investors could have made.
It also shows how far silver has moved during the current bull market – if indeed this is (as I’m inclined to believe) the start of such a thing.
Picking the exact dates to call the “start” and “end” of earlier bull markets is a slightly arbitrary exercise. But the broad message remains the same.
A silver bull market is a multi-year thing. And historically they have delivered very strong returns.
For our purposes here I’ve picked out the following silver bull markets and the potential gains for an investor who held silver bullion:
November 1971-February 1974 (415% potential gain)
June 1977-January 1980 (1,041% potential gain)*
March 2003-March 2008 (378% potential gain)
October 2008-April 2011 (421% potential gain)
I’ve put an asterisk next to the bull market that ended in 1980, because that run-up in silver prices owed a lot to the Hunt brother’s failed attempt to corner the silver market.
Still, it shows the potential for silver to move very quickly when a lot of money enters this small, overlooked-by-the-mainstream market.
My point – as this chart illustrates – is that there could be plenty of upside left for precious metals investors who build positions now:
Silver’s 2016 gains so far are way below what earlier bull markets delivered
How Much You Could Make From Silver Investment
Source: LBMA
That thick black line in the bottom left corner is what silver’s done since January. Not a lot, basically.
Against a global backdrop of historically high indebtedness and increasingly aggressive monetary policy, it’s a brave investor who rules out the prospect of a new bull market in precious metals.
And history shows us that when a bull market in silver takes hold, it can send bullion prices much, much higher.
That’s before you consider the fact that silver miners can deliver returns that are multiples of the return offered by the metal itself…
And before you consider what Simon’s uncovered about how the US election could have a direct and immediate impact on the silver market.
I felt the best way to share his idea with you was to get Simon on camera, kick it about a bit and lay out exactly why we could see an immediate move in a specific corner of the silver market two weeks from now.
So that’s exactly what we’re putting together.
Next Wednesday, 2nd of November, Simon and I will broadcast an urgent analysis at 7pm.

(Kitco News) – Gold prices are expected to struggle to the end of the year as the market prepares for the Federal Reserve to raise interest rates in December, but one mining analyst continues to see potential in the mining sector.

Brent Cook Of Market Insight says now is the time for investors to get positioned again in the gold mining sector

Brent Cook, editor of Exploration Insights
In a recent interview with Kitco News, Brent Cook, editor of the popular mining newsletter, Exploration Insights, said that the correction in gold at the start of the month, which saw prices fall more than 5% has created a new buying opportunity for investors throughout all segments of the industry.

The large cap mining the mining sector, represented by The Market Vectors Gold Miners Exchange-Traded Fund (NYSEARC: GDX) fell almost 14% at the start of the month but appears to be stabilizing with prices last trading at $24.70 a share, up 2.5% on the day.

Market Vectors Junior Gold Miners ETF (NYSEARC: GDXJ) fell more than 15% during the correction; the EFT is also off its support, last trading at 41.79 a share, up 2.8% on the day.

“Intelligent investors have been waiting for this correction and now it is time to acquire, selectively, quality projects that make money at this price,” he said. “Across the board, the next couple of months is the time to get positioned again.”

However, Cook’s preferred sector for long-term investors has managed to hold on to most of its gains. He said that he still sees junior explorers as the best opportunity in the mining industry, represented by the TSX Venture Index. The TSX Venture Composite, which is heavily weighted with junior miners and explorers is only down 6% from its highs seen mid-August.

Cook said that he continues to look for investment opportunities among junior explorers because this sector is ripe for take overs from major producers that have significantly slashed their exploration budgets to cut costs and improve their balance sheets.

“Fundamentally, looking longer-term, the gold mining industry is producing more gold than it is replacing,” he said. “Last year the sector produced about 90 million ounces but only discovered 40 million new ounces and that has been going on for a number of years.”

Cook added that for investors to be successful in the mining sector, they have to be aware of projects’ “fatal flaws,” — an idea that he has been developing throughout the year.

“A majority of projects end up a bust,” he said. “Our job at Exploration Insights is to identify those fatal flaws as early as possible to get out of the stock as early as possible.”

A couple of simple factors investors should look at when evaluating projects are things like the continuity of makeup of the mineralization

“If the mineralization doesn’t connect or it takes a lot of energy to break the gold lose, those could be a huge costs that might not make the project viable,” he said.

(Kitco News) – Gold can play an important role for investors in a world that continues to face low and negative interest rates, according to one renowned economist.
Mohamed El-Erian, Allianz’s chief economic adviser, sees it approporiate for investors to hold 5% of their portfolio in gold
Photo courtesy of the IMF: Mohamed El-Erian, Allianz’s chief economic adviser.

In an interview with the Wold Gold Council, in it Gold Investor, fall edition, Mohamed El-Erian, Allianz’s chief economic adviser, said that in this current investment environment, a 5% strategic allocation in gold “is appropriate.”
“As part of a diversified portfolio allocation that includes a higher-than-usual cash allocation, gold can play an important role in overall risk mitigation. It can also provide a notable upside should the enormous amount of central bank liquidity injection gain traction and result in higher inflation, be it actual or expected,” he said in a question-answer session.
“A growing number of investors are recognizing the potential of gold to increase returns and improve risk-mitigation attributes of well-diversified portfolios. At the same time, there are – understandably – growing worries about the over-valuation of public equities and fixed income, thereby strengthening the case for an appropriately-sized allocation to gold,” he added

However, he also cautioned investors that their gold allocations should reflect their own risk tolerance as the market can be fairly volatile.
The prolonged period of low and negative interest rates has pushed the global economy into unchartered waters, he said, which is presenting real risks for investors. Along with gold, he said that he is recommending investors hold bigger cash positions.
“Ultra-low interest rates entice investors to stretch much more for returns. Combine this with repressed financial volatility, another objective of unconventional central-bank policy, and you could well end up with excessive risk-taking on the part of too big a portion of the investor base,” he said.
While low interest rates are increasing risks for investors, it is not the only threat to financial markets. El-Erian said that he sees three factors that are weighing on advance economies growth: political polarization, which is delaying the implementation of comprehensive pro-growth structural reforms; growing income inequality that is reducing the probability of good economic governance; and current economic and financial systems that are excessively borrowing future growth.

GOLD MARKETS need gold, and that can only ever come out of a mine in the first place or come from a refinery when recycled, writes Adrian Ash of BullionVault, currently in Singapore attending the London Bullion Market Association’s 2016 conference.

So a huge and critical business works to lend cash as well as gold bullion, so that miners and refiners can finance production and source metal to sell.

That business – bullion banking – underpins the supply chain providing manufacturers, dealers and ultimately consumers with the gold they want to buy. And once again, this time in Singapore, that supply chain of bullion bankers, refiners and the other massed members of the LBMA find themselves at a truly ‘ decisive turning point’, aka in crisis.

Last year when the LBMA met for conference in Vienna, the existential crisis had become plain and painful as sinking prices and a growing burden of regulation and regulatory costs drove key players to quit the gold market entirely.

Even with prices $100 higher per ounce 12 months later, the “unstoppable pipe” of regulation has continued dripping onto the gold bullion market, and the critical decisions affecting it are set to have a greater impact – risking “a collapse” in fact, to quote a press briefing by the LBMA’s executive team this morning – if one seemingly small and boring little change to banking regulation goes ahead as planned.

Known as Basel III, the banking rules set to come into force by 2018, and starting over coming months, will force large institutions to value each asset they hold at a different rate based on what the Basel Committee sees as its level of risk when measuring the stability of their balancesheets,

Deeply liquid, instantly priced and potentially a ‘safe haven’ asset is good, of course. Unsurprisingly, and very conveniently for debt-laden governments, sovereign bonds fit the bill precisely. Yet physical gold is ranked with the very worst junk an investor can own, and can be accounted at only 15 cents in the Dollar.

That 85% haircut, as you can guess, is a disaster for any bank holding a lot of gold, ready to lend. The cost of doing business will jump – perhaps by 300% on one estimate. And so as the LBMA warned the Basel committee (as well as its own members) back in 2015, “Costs will be transferred to clients, making it very expensive to do business…Market liquidity will fall as a result of firms seeking to reduce their gold holdings.”

Put another way, and with real urgency by LBMA co-chairman and Asahi Refining president Grant Angwin today, “Anyone borrowing metal could face serious liquidity issues” thanks to Basel’s new net stable funding ratios ( NSFR for short).

As in, like, serious. Because a 300% jump in the cost of lending isn’t a mere problem. It’s a “get out of that business!” problem as CEO Ruth Crowell added.

Hence the possible but by no means certain “collapse” of our headline. The LBMA executive, together with bullion banks and the mining-backed World Gold Council, have lobbied and continue to lobby the Basel committee, starting a long way back in fact.

But the risk, according to co-chair Angwin, is that the wider gold market – seeing how the LBMA executive and others are working to get new data on gold’s deep liquidity so as to educate Basel first about the merits of gold, and then about the dangers of its current decision – will fail to understand or join the lobbying against the “full impact” of the looming 85% haircut when it kicks in, sometime by 2018 on the current schedule.

The Basel committee has, apparently, been “sympathetic” to the issue, but for now there’s no change.

If the banks do exit, then liquidity will be gone…and the gold market will quite literally face collapse.

More fun from the LBMA conference to come!

There’s no other way to say it: Gold had a bad week. Last Tuesday alone, the yellow metal fell more than 3 percent, shuffling off $43, in its biggest one-day loss in three years. It broke below the psychologically important $1,300 mark and touched the 200-day moving average before rising again Friday.

Now Could Be Buying Opportunity Gold

In the past, gold has surged in September and corrected in October leading up to Diwali, the Festival of Lights, in India. Consumers there are expected to take ample advantage of the gold discount’s timing, as it follows a strong monsoon season and comes just before Diwali and the wedding season, when gifts of gold are considered auspicious. The correction has been followed by a Christmas and Chinese New Year-driven rally.

The Love Trade in China was on hold last week, as markets in the world’s largest consumer of gold were closed in honor of Golden Week, when people celebrate the founding of the People’s Republic of China. The Asian giant has increasingly become a price-maker of gold—remember, it introduced a renminbi-denominated fix price in April—so when it’s not in the game, the shorts can easily bring the metal down. Many investors put in their trades the previous week, anticipating China’s closure.

Below, you can see gold edging close to negative 1 standard deviation, triggering a “buy” signal.

Gold 60 day percent change oscillator

Goldman Sachs analysts, who normally hold a bearish outlook on the yellow metal, echoed the sentiment in a note last week, writing: “We would view a gold selloff substantially below $1,250 as a strategic buying opportunity, given substantial downside risks to global growth remain, and given that the market is likely to remain concerned about the ability of monetary policy to respond to any potential shocks to growth.”

As always, I recommend a 10 percent weighting in gold, with 5 percent in bullion and coins, the other 5 percent in gold stocks. Investors might be interested in using this time to rebalance. With China open for business again this week, I expect the metal’s performance to improve.

Like gold, the British pound took a hard beating last week, plunging more than 6 percent in early Asian trading to a three decade-low against the U.S. dollar.

The British Pound Just Got Pounded

I don’t know about you, but I find it interesting that the drop occurred mere hours after French President François Hollande told an audience that the European Union should take a “firm” stance against the U.K. for its Brexit vote, partially with the intent of discouraging other EU nations from leaving the bloc.

The Debt Hangover
This week, the International Monetary Fund (IMF) released an eye-opening report on the ticking time bomb that is global debt, warning the nations of the world that if they don’t deleverage—and soon— there could be grave consequences. At the very least, we could continue to see sluggish growth. In 2015, global debt of the nonfinancial sector, including governments, households and nonfinancial firms, stood at a mind-boggling $152 trillion, or 225 percent of world GDP, an all-time high.

Global Gross Debt All Time High

Two-thirds of this amount, according to the IMF, comes from the private sector, which has lately gorged on cheap credit, especially since rates were slashed following the recession. This not only raises the possibility of another financial crisis, “but can also hamper growth even in its absence, as highly indebted borrowers eventually decrease their consumption and investment.”
In other words, debt plus slow growth leads to even more debt and even slower growth, creating a “vicious feedback loop” that becomes harder and harder to escape, the IMF writes.

$23,000 Gold?
In June 2015, I shared with you a thought experiment of what might happen to the price of gold if tomorrow it backed global debt 100 percent. Since it’s been more than a year since then, and because a few things have changed, I thought it might be interesting to revisit this idea.

According to the latest data from the World Gold Council (WGC), an estimated 186,700 metric tons (6.5 billion ounces) of gold have been mined in the history of the world. Based on today’s prices, this mountain of metal is worth $8 trillion.

Let’s imagine we wake up tomorrow morning and learn that all debt—all $152 trillion—were backed by gold. That means each ounce of the stuff would suddenly be valued at roughly $23,000. With one American gold eagle, then, you could buy a new family sedan and still be left with some pocket change.

Gold Debt

Now of course this is ridiculous, but that’s part of the experiment.

There was a time when most advanced nations’ currencies were backed by physical gold (and/or silver). And because gold is limited, so too was public spending. In 1970, a year before President Richard Nixon “closed the gold window,” the U.S. owed $370 billion. Today, it owes $19.5 trillion, or more than $163,000 per American taxpayer.

Had we stayed on something resembling a gold standard, it would have been highly unlikely, if not impossible, for our debts to climb so high.

I’m not saying we should—or even can—return to such a system, despite the endorsement of Donald Trump, Ted Cruz and several other prominent politicians. It would be challenging to find a single legitimate economist who supports a gold standard in today’s incredibly complex economic environment.

Central banks, on the other hand, continue to add to their gold reserves and drive demand.

According to a Macquarie report last week, banks added 27 tonnes to their reserves in August in an effort to diversify their assets and hedge against their own policies. As we’ve been seeing lately, Russia and China were responsible for a huge percentage of the buying, with Russia saying it has no specific target amount, according to the WGC.

In a survey of 19 central bank reserve managers, the WGC found that close to 90 percent of them have plans either to increase their gold reserves or maintain them at current levels.

Investors might consider doing the same, for the very same reasons.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

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The price of gold plunged Tuesday, reaching its lowest level since the Brexit crisis as a bullish dollar made greenback-denominated precious metals more expensive for foreign buyers.

Gold for December delivery fell $42.20, or 3.2%, to $1,270.50 a troy ounce, its lowest settlement on the Comex division of the New York Mercantile Exchange since the June 23 Brexit vote. In percentage terms, Tuesday’s decline was the biggest since late 2013, according to MarketWatch.

Bullion has moved below a key horizontal support line, which could expose the metal to further downside risk. Immediate support for the contract is now located at $1,259.00.

gold

Silver prices also plunged to three-month lows, erasing all of their post-Brexit gains. The December futures price fell 1.04, or 5.5%, to $17.83 a troy ounce.

A surging US dollar was the main catalyst behind the massive decline. The dollar advanced 0.5% against a basket of other major currencies, propelled by large gains against the British pound. Sterling has been in free-fall since British Prime Minister Theresa May announced plans to begin the formal Brexit process by the end of Q1 2017. The British leader also indicated that her government will negotiate for a hard Brexit rather remain part of the single market.

The US dollar was also supported by rising rate-hike bets. By the end of day Friday, traders were pricing in a nearly 59% chance of a December liftoff, according to the 30-day Fed Fund futures prices.

On Wednesday, ADP Inc. is forecast to show the creation of 166,000 private US jobs in September. The payrolls processor reported an increase of 177,000 the previous month.

The Labour Department will release its official September nonfarm payrolls report on Friday. The report is expected to show the creation of around 170,000 nonfarm jobs. Unemployment is expected to hold steady at 4.9%.