Gold and Silver - What's Driving Their Prices?
Gold and Silver continued making headline news yesterday and this morning, with everyone reading this likely being well aware that both breached, and so far have held above U.S.$1,500 and U.S.$45 respectively. At 11:30 a.m. ET this morning they trading at U.S.$1,504.14 and U.S.$46.02. To put these two prices in context, on January 1, only 80 calendar days ago:
- physical gold closed at U.S.$1,338.30 (or thereabouts depending on which exchange one looks at). This morning's gold price is 12.4% higher only 80 calendar days later. This is an annualized price increase of 56.6%; and
- physical silver closed at U.S.$28.02 (or thereabouts depending on which exchange one looks at). This morning's silver price is 64.2% higher only 80 calendar days later. This is an annualized price increase of 292.9%.
So what are today's gold and silver prices telling us?
The first question I ask is "what macro-economic events have occurred since January 31 that reasonably can be said to not have been predicable on that date, but are now 'in the market'"? My thoughts:
- riots began in Tunisia in December, 2010, and hence can be said likely to be 'well considered' by January 31;
- riots began in Egypt on January 25, and hence by January 31 might reasonably be said to have been 'relatively new' with their impact being more speculative on January 31 than currently is the case;
- the Libyan revolution that has led to the current ongoing turmoil in that country started on February 15, so awareness of that was not 'in the market' on January 31;
- the largest of the recent Japanese earthquakes and resultant tsunami occurred on March 11, with the ongoing Fukushima nuclear disaster happening in its aftermath. Clearly, these events were not 'in the market' on January 31;
- the U.S.$ exchange rate has deteriorated from $0.74 to just under $0.69 against the Euro in that 80 day period, notwithstanding the EuroZone Sovereign Debt issues have again 'come to the fore' in the past two weeks;
- after January 31 the political polarization in Washington has become (or so I think) ever more apparent. Witness the 11th hour (literally) budget debate that on April 8 came close to shutting the U.S. Government down, and the issues of the U.S. Debt Ceiling and 2012 Federal Budget that will be debated in the next few weeks and months;
- there has been an increased emphasis on U.S. non-durable goods inflation after January 31 - or again, so I think. Note that the WTI oil price was over U.S.$112 this morning;
- there has been increasing discussion around whether the U.S.$ will continue as the world's reserve currency;
- from my perspective there is comparatively little change in the volume of commentary that has been made about gold after January 31. However, that is not to say that more people and investment groups have not become more conscious of physical gold, and it potential importance to them as a 'real money' 'safe haven'. Silver, on the other hand, seems to me from observation to have been much more in the public eye after January 31 than it was before that date, with the possibility that increased 'silver publicity' has caused more physical silver buying traction for 'investment' purposes than was the case prior to January 31; and,
- add your own thoughts here to what I am not holding the foregoing out to be an 'all inclusive' list.
The second thing I continue to think about is how much froth currently may be in the silver market in particular, resulting from 'lemming like' activity on the part of investors and speculators. I have to believe there is currently some 'exuberance influence' currently in the silver market, and to some degree perhaps in the gold market as well. When I read articles and listen to interviews or presentations I look for balanced positive and negative commentary (on any subject, not just on gold and silver). I don't see much negative commentary these days.
All that said, gold and silver are priced in U.S.$. Can the rising gold and silver prices simply be the result of the gold and silver markets telling us they are becoming each day more convinced that in the face of America's debt load, ongoing monthly net trade deficits, lost manufacturing jobs and unemployment levels, and broad-based world uncertainties, the U.S. Federal Government and Mr. Bernanke will be unable to 'economically right the good ship America' in a way that will get the U.S. even close to where it was on the world economic stage ten years ago?
Only last Friday (April 15), when the physical silver price was about U.S.$42.50, in a commentary titled 'Silver - Too Fast?' I said that "having regard for my own circumstances, I am prepared to hold my physical silver position for the time being, but plan to watch things very closely every day, and make a new decision on my sell/hold/buy view each day. Six days later, having read numerous further articles speaking to the run-ups in both the gold and silver price, I am still of that same mind - but particularly in the case of silver, I am becoming ever more wary of its rapid price increase (about 8% since last Friday).
Disclosure: I am long both physical gold and physical silver