Another all-time high for gold, whatever happened to the summer lull?
Posted on 31 July 2011 with 6 comments from readers
Traditionally gold prices are weakest in the summer period, and yet here we are at the end of July with gold futures pointing to a fresh all-time high of $1,637.
Traders are pointing the finger at the US debt ceiling debacle and signs that the US economy is heading back into recession as the immediate reasons for the rise in yellow metal prices.
Silver up 15%
As usual the focus is on gold while silver is actually up by more in July, rising 15 per cent in the month, again also against the normal seasonal trend.
Gold and silver are increasingly being treated as an alternative currency to the US dollar that cannot be printed. The supply of precious metals remains static – or may fall if the new labor dispute in South African mines gains traction – and that ensures it will rise in value in dollar terms as the supply of dollars surges.
But it is more than that. The total reserves of gold are very small, and silver miniscule. Once demand for precious metals really takes off it will drive the price much higher than the rate of monetary inflation.
We noticed an advert on TV on the back of a WestJet flight seat for scrap silver yesterday! They never used to bother with silver because its price was too low.
Of course, a last minute deal on the US debt ceiling is expected in financial markets and that might reverse precious metals for a few weeks into their traditional summer lull.
However, what if such a deal is not forthcoming or falls way short of the compromise that is built into stock market prices? We could see a mayhem in markets.
That maybe what the Republicans want to embarrass the president who seeks re-election next year. On the other hand, they will be mindful of being blamed for a sudden stock market crash.
Blame game
And yet the incumbent president is bound to take the blame for events on his watch. Tripping him up is a part of the political theatre now, and it is arguable that extending the debt ceiling without any attempt to lower the debt is bad government. This is obvious really, so far removed has US economic management moved away from reality.
Would gold and silver go higher if financial markets came off the rails, or fall as in 2008? It is hard to say, nobody thought gold would be at a record high now, the consensus was for a correction.
Still aside from shorting stocks what else is worth doing right now aside from holding onto precious metals?
6 Comments posted by readers:
I am simply astounded that the only price discovery mechanism we have for Silver is the obviously ‘faulty’ COMEX (I include the London exchange in this too as they are effectively co-joined, and I exclude Hong Kong as it is yet to become established).
It almost beggers belief that the entire world still uses the COMEX to ‘work out’ what silver is worth (against a devalued currency too!). However, this is actually a GOOD thing at the moment. Controversial I know, but the low silver price coupled to the spreading of the message that silver is undervalued, is allowing the ‘ordinary citizen’ in many countries throughout the world to put thier savings into something tangible, universalily valuable and recognised, and likely to offer protection against financial instability (in whatever form this arrives in).
I have mentioned before that the price ‘Genie’ that the COMEX and thier partners have created to ’stabilise’ the price of silver is now well and truely out of the bottle and is refusing to go back in and the only way for silver is up. However, the curreent low price of silver has offered a buying opportunity of unpresedented scale. Indeed we have all seen evidence of a massive global buying spree of the metal, not just by industry keen to stockpile, and not just by ‘big players’ either – but very small investors and more importantly savers from the ‘working classes’ (to use a UK term).
We are now seeing ‘ordinary’ people on real world incomes (who are loosing confidence in the banking system) buy into silver as a ’safe haven’ (gold is now too expensive for most people on low to normal incomes with families to support).
If the low price of silver can be maintained by the COMEX for another few months, countless thousands more ‘ordinary’ people will be given an opportunity to buy silver at a price that will never return, in my lifetime at least.
All of this buying will simply remove available physical silver at a faster pace than it would otherwise have been if prices were higher, thereby hastening the eventual supply ‘event’ that I have previously mentoned in other posts.
Once we reach a real and substantial supply shortage ‘event’ we will all finally discover what the true market value of silver actually is.
Dubai duty free were selling 1oz gold coins for about $200 about spot today. Even the 1kg bar was $100 per oz over spot at AED 204,513 !
No wonder they now sell at the same price whether cash or credit card.
Will look like a bargain further down the road, but I’ll stick to the bars and sovereigns in the Dubai Gold Souk.
i think gold would at least not drop much in a stock crash now…..nothing like ‘08.
peter if you can come up with something othet than holding precious n short stocks i’d like to hear it.
not attracted to rare earths until the crash……but even thats a longgggggg i don’t know if i can use at 62…….its going to take so much to get this straightened out i don’t know if it can be done or how.
@ The Old Man:
Excellent points, all!
Last week, I told a friend to be prepared for JPM to short the gold and silver prices again, after a fake “debt deal” had been reached. Sure enough, last night (California time), I watched as JPM, et al. drove the PM prices down hard; I was pleased, and had expected the PM prices to remain depressed when the market opened here in the US.
But since this so-called debt deal is really good news for the PM prices, JPM had to cover some shorts really fast today, as the price of silver kept shooting back up.
Could this be the last time we can buy silver in the mid to high $30s? Quite possibly, unless there’s worldwide deflation on a temporary basis.
. . . and then there’s this huge financial problem hanging over all of Euroland, and Italy is now becoming a huge problem, as the financial obligations of both Germany and France are about to go through the roof!
Go here for info:
http://www.zerohedge.com/news/vespa-has-crashed-mountain-italy-burning
Anyone wanna guess what that will do to the price of gold and silver? Since paper gold and paper silver are, well, just paper and nothing else, I’m reminded again of what how JP Morgan described gold.
“Gold is money, and nothing else.”
Got some of that physical stuff yet?
@ boatman:
My response to your question (to Peter) is this:
1. Gold and silver mining stocks are underpriced, thanks in large part to the continued price manipulation by JPM & the FED, who don’t want to see money going from the Dow & S&P into the mining firms. They will do anything to keep the Dow and S&P up, but they will fail. Gold and silver mining stocks are the best investment at this point, next to owning physical gold and silver.
2. If you are currently holding REEs and have a paper gain, you might want to hold onto most of them (I am in that situation currently).
Otherwise, wait for a 20% correction in the stock market, then do some research before jumping in.
3. Ditto energy stocks; wait for a 20% correction in the general market before jumping in.