Increased buying of gold and silver.

With growing tension in the Middle East and rising prices, there is great fear that inflation is going to hit the stratosphere. To stay invested in real assets is the way to go. For the average person, buying some precious metals is the easiest way to ensure financial security in a strong inflationary environment.

This is from my latest reading:

China’s Industrial and Commercial Bank(ICBC) reports that purchases of physical gold and gold-related investments are growing at record setting rates.

In January alone ICBC sold 7 tons of gold– almost half the 15 tons it sold in all of 2010. It also sold 13 tons of silver in January– almost half the 33 tons of silver it sold to clients during the past year.

 

Zhou Ming, deputy head of the precious metals department at ICBC believes that gold and silver  purchases are replacing property speculation in China as the preferred investment.

Read article here.

The trend is clear. Gold and silver buying is strengthening and it is likely to get stronger for the rest of the year. Buying on any pull back is likely to be the mantra for as long as the spectre of stronger inflation remains.

Where are the supports for silver? Currently, the 14dMA is at US$29/ounce and the 200dMA is at US$23/ounce. Anyone who was waiting for the price to weaken further before buying in the last correction like I was would remember the experience. The next time silver corrects, expect buying to come in much earlier at supports. I will wait patiently to accumulate at supports.

Silver, backwardation and US$35 an ounce.

We have heard of sugar rush. I think we are seeing a silver rush which could last for a while. I might have to wait for a while longer before the fervour dies down somewhat for silver to pull back so that I could increase my long position in the metal.

However, I am not complaining since I am vested in the metal. In fact, I should be looking into possibly taking some profit off the table as its price forms a new high. If we believe in the forecast by UBS, US$35.00 an ounce within the next 30 days is what we should be looking out for.

As of now, silver is at US$32.24 an ounce:

The bank also lifted its three-month price view for the metal to $33 an ounce from a previous forecast of $27. The move came as spot silver prices rallied to a 31-year high at $31.95 an ounce.

"The investor spotlight is firmly focussed on silver following recent headlines about producer hedging, in light of bullish industrial demand prospects, and due to the general tightness in the market, which last month flipped silver forwards into backwardation," the bank said in a note.

Read article here.

Silver: Rocketing demand.

These are some interesting facts I found out about silver from a reading today:

1. The U.S. Mint sold over 6.4 million silver Eagles in January, more than any other month since the coin’s introduction in 1986.

2. China’s net imports of silver quadrupled in 2010, to 122.6 million ounces, roughly 13.7% of global production.

3. Silver rose over 3,646% from trough to peak in the last precious metals bull market; it’s up about 630% in our current run.

After a brief correction of about 10%, silver looks like it could form a new high on the one year chart. I am always wary of chasing rising prices. I would patiently wait for the next pull back but instead of waiting for a 20% pull back, I could increase my long exposure with just a 10% pull back. I shall wait and see.

Reference:
How much more demand can silver handle? 
by Jeff Clark, 16 Feb 2011.

More on silver and backwardation.

This is something I just read and would like to share it with anyone who wants to learn more about silver and how it is going higher in 2011:

 

While I’m on the subject of silver, I want to briefly discuss the silver backwardation issue…where the front month [March] is selling at a premium to the May contract…and beyond.  When I was looking at the silver futures trading on Friday, I didn’t see any premium at all between March and May.  As a matter of fact, the May contract was selling for about 2.5 cents more than the March contract, which is not backwardation at all.

To find silver selling at a discount to the March silver contract, I think I had to go out to the September 2012 contract to find any sign of backwardation…and even then it was only a penny cheaper than the March contract.

To give you an idea how tight and how close we are to real backwardation.  March silver is quoted at $29.995 the ounce.  If you go out to December 2015…silver is quoted at $29.875 the ounce.  That is true backwardation…but who would want to sell silver in March hoping to get it back in December 2015 and save themselves 12 cents the ounce?  Nobody, that’s who.

Every time I purchase physical silver, I always wonder if that is the last time that I’ll be able to buy it on the cheap.  I don’t know when all this is going to end, but when it does, I don’t want to look back with regret that I didn’t buy every ounce that I could right up until the bitter end.  So, I’m going to stay ‘all in’ until the silver market hatches into something….and it just might do that…and soon.

Silver is now retesting its high of US$30.70 an ounce.

It is, therefore, likely that market participants who were waiting for a stronger correction in the price of silver to the 200dMA level would become more aggressive buyers of silver at every pull back from now on, remembering that while they waited, silver went powering back up.

What would I do? The next time silver pulls back to US$27.40 to US$28.00 an ounce, I could increase my exposure to the metal. I still do not like to chase and would not buy at current levels but would wait at a higher level to collect instead of US$24 an ounce I was waiting at before.

Higher price of silver and a stronger US$ is reflected in the selling price of silver at UOB today: S$39.20 an ounce.

Source: Gold and Silver Daily, 15 February 2011.

Backwardation and silver to hit US$50 an ounce.

I learned something new today and it is called "backwardation". This is defined as "a situation where the price of a commodity for future delivery is lower than the price for immediate delivery."

James Turk, CEO and co-founder of GoldMoney believes that silver is in backwardation to 2015 and that the demand for physical metal is so much higher that people don't want paper any more, they want the real thing. Silver looks like it's going to go to at least US$50 an ounce in 2011.

While I believe that investing in silver is potentially more rewarding than gold in 2011, this is a very bullish forecast from the gentleman. I am still waiting for a more substantial correction before increasing my long position in silver.

Related post:
Silver broke short term resistance.

Reference:
Silver to reach $50 in 2011 and gold at $8,000 by 2015.
by Geoff Candy, 11 Feb 2011.

China hikes rates and precious metals are up!

The People's Bank of China said in a brief statement that it would raise the one-year deposit and lending rates by 25 basis points each, taking the rates to 3.0 percent and 6.06 percent respectively. This is the third time in four months in an effort at reducing liquidity which has caused broad based inflation.

China's consumer price index (CPI), a key measure of inflation, rose 4.6 percent year-on-year in December, down from 5.1 percent in November, which was the fastest rate in more than two years.

Typically an interest rate hike would drag on gold. As paper money gains more value, gold becomes a less appealing place to put money. Gold also does well in a negative interest rate environment, which is the interest rate minus the inflation rate. Using the one year deposit rate, even with the hike, China still has a negative rate of 1.6%.

This is why gold is, as of now, up US$18 an ounce or 1.34% to US$1,365.60 an ounce despite China's decision to raise key interest rates.

Silver is up as well and is now US$29.97 an ounce.

References:
1. channelnewsasia.com dated 08 February 2011 1905 hrs
2. The Street dated Tuesday February 8, 2011, 9:18 am EST

Silver broke short term resistance.

Technically, silver broke resistance provided by the 14dMA. We could see silver's price going higher from here in the short term. This could be in response to the political turmoil and social unrest in the Middle East. We live in uneasy times.

So, am I buying more? Well, technically, the 14dMA has turned down while the 200dMA is still rising. Silver could just be bouncing higher in the short run before trending lower once more. I said before that we could see silver sinking closer to the US$24.00/ounce level and I am still of that believe.

I don't like to chase. If I missed the boat, too bad for me but I would sleep better at night knowing that I did not pay too high a price for something. Of course, this is subjective as there is nothing to say that high could not go higher.