Gold hits record high, silver jumps even higher on S&P debt downgrade
Posted on 08 August 2011 with no comments from readers
With US treasuries no longer a safe haven the precious metals are in demand, and any suggestion that they will sink with the stock market as technical chartists suggest is being over-ridden by fundamental demand.
At the time of writing gold is close to $1,700 an ounce, up 2.8 per cent and silver is up more than five per cent. Silver has a much tighter supply situation than gold and so the price rise is higher for the same level of increased demand.
Repeating 2008?
When the stock market tanked last Thursday the price of the precious metals fell as some players liquidated their holdings of precious metals to meet trading losses. However, it is clear that buyers for this gold and silver emerged very quickly, particularly after the S&P downgrade.
The logic is clear. US treasuries can no longer be counted as a true safe haven for investors. Nobody could ever downgrade gold or silver. The metals are what they have always been, a store of value down the ages.
You also have to look at who is holding precious metals now. In 2008 the hedge funds were big holders. They sold down into the stock market rout to raise cash to cover leveraged positions and margin calls.
Today hedge funds are smaller players and less leveraged. The precious metals are in the hands of central banks, who only want to buy more and have nothing for sale and the wider investment community and general public.
Bond market crisis
The game has shifted: 2008 was all about the equity markets; 2011 is about the bond markets. Now historically a bond market crisis has always been the best possible development for the price of precious metals.
Basically gold and silver lose their main competitor as a safe haven. Moreover, the bond markets are much, much larger than the gold and silver markets, and so as money comes out of bonds and into precious metals the price has only one way to go.
That was the nub of the argument in ArabianMoney editor and publisher Peter Cooper’s book written over three years ago: ‘Dubai Sabbatical: The Road to $5,000 Gold‘.
