gold and silver market changes

Bullion prices have lost further ground over the course of the week with the yellow metal currently at its lowest in nine-weeks. Silver has been under similar pressure, dipping to a seven-week low with AU/AG ratio edging above 49.5 this morning, the first time since November 30th.

The current corrections are, with a degree of hindsight, a little overdue, and giving the gains posted by both metals last year, particularly silver, not a particularly major shock. But, what is interesting is the market perception of the corrections. Previous start of year pull-backs have been met with scepticism with bears predicting the end to the bull-trend and the return to lower levels. However, the strength seen in both metals over the past few years has created an increasingly bullish air with the poll of LBMA forecasters predicting gold to average $1,457/oz this year and silver almost $30/oz.

The accompanying chart gives an indication as to why the metals are currently under pressure, as ETF investors curb some of their exposure and look to switch either to riskier asset types or to take advantage of the recent rise, albeit modest, in treasury yields. However, while the cynic in me is beginning to think the weight of interest in bullion is an indicator to turn bear the amount of pent-up demand lurking below will, for the time being, continue to underpin bullion prices, and ultimately propel the metals to fresh highs above $1650/oz in gold and $40/oz for silver later in the year.

One indication as to the level of demand below the market has been the rush for coins with the US Mint reporting the sale of some 4.5M/ounces worth of Eagles so-far this month compared with 1.77M/ounce for the whole of December. With interest rates set to remains at, or near historic lows for some months to come; Europe and most Western nations struggling with burgeoning deficits and inflation becoming an increasing concern the expectation of strong returns from safe-haven assets seems likely to remain appealing to investors.


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