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Where Do Silver Prices Go From Here?

March 17th, 2016

silver pricesLawrence Meyers:  There’s been a strange disconnect among the prices of gold, platinum, palladium and silver recently. Let’s run through some price history among the precious metals, and see if we can figure out what’s going on with silver prices. It’s been lagging gold on this latest run.

If we look at a chart that compares the iShares Silver Trust (NYSEARCA:SLV), SPDR Gold Shares (NYSEARCA:GLD) and TFS Physical White Metal Basket Shares (NYSEARCA:WITE), we see that the metals all have moved in relative lock-step for the past five years. The charts look identical.

precious metals chart

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However, there is a major difference between gold and the white metals. Gold maintained, and continues to maintain, more intrinsic value than the others. With a starting point of March 2011, the white metals fell below the break-even line in September of 2011, and have never revisited it. They’ve been in a downtrend every since, with prices slowly eroding over time.

Gold, however, took much longer to give up its gains, and still never gave up nearly as much as the others did. The white metals fell 54% (platinum and palladium) and silver fell 60%. Yet gold only fell 26% at its worst.

So far this year, gold is up 16%, silver is up 10% and the white metals are up 4%.

Why?

Psychological Factors for Silver and Gold

When it comes to precious metals, the prices will always depend on supply and demand, as we might expect. However, supply and demand bifurcates into two different categories. One involves demand for the actual practical uses of the metals, and the other involves demand for them as safe havens during period of market instability.

Unsurprisingly, demand for gold shot up during the first part of the year during the market’s turmoil. The inference seems to be that, for whatever reason, ever since the end of the financial crisis, the psychological safety factor for gold appears to outweigh that of the white metals. When we consider that the financial crisis was a true panic, and the stock market fell 55%, it is not unusual that primary safe havens like gold would trigger interest in secondary havens, like silver.

You could go back and look at financial articles published during the crisis, and you’ll see lots of articles with the headline, “Gold is great! Don’t forget about silver!” In the worst of times, money will overflow in the bucket of one hard asset into the bucket of others beneath it.

This time, however, the panic isn’t as palpable, so gold has seen most of the benefit.

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  1. Roger
    March 18th, 2016 at 05:29 | #1

    “SPDR Gold Shares (NYSEARCA:GLD)”

    I’ve been trying to do my due diligence on this fund. Anyone know why there is a clause in the GLD prospectus that states GLD has no right to audit subcustodial gold holdings? Why would the organizations behind GLD forfeit this right and create such a glaring audit loophole? I have not heard a single good reason for the existence of this loophole thus far. It also doesn’t help that GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion. There are a number of other red flags as well from what I’m reading:

    “Did anyone try calling the GLD hotline at (866) 320 4053 in search of numerical details on GLD’s insurance? The prospectus vaguely states “The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody.” When I asked about how much of the gold was insured, the representative proceeded act as if he didn’t know and said they were just the “marketing agent” for GLD. What kind of marketing agent would not know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors.

    I remember there was a well documented visit by CNBC’s Bob Pisani to GLD’s gold vault. This visit was organized by GLD’s management to prove the existence of GLD’s gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this “GLD” bar was actually owned by ETF Securities.”

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