On Your Marks! Get Set! GOLD … And Silver, Too

The most recent CFTC report, released late Friday, showed that large speculators increased their net longs (the largest net-long positions for futures and options combined since October 16) in gold and silver.

Gold posted minor gains on Monday on strength in the euro, but uncertainty about the US budget talks kept advances in gold bullion under check. The US Dollar Index was lower and hit another fresh four-week low. A solidly lower US Dollar Index prompted some fresh bargain hunting following last week’s selling pressure in gold futures.

Underscoring investors’ interest in Gold, holdings of Gold ETF – Exchange-Traded Funds hit a record high and speculators raised their net length in Gold for the third straight week. Gold ETP holdings rose to a record for the 12th straight session to 2,623.4 tons.

Flows for the year-to-date have hit 264 tons. Data shows 1.04 million ounces of Gold ETF inflows during November. The euro rose to a six-week high versus the US dollar after upbeat China manufacturing data helped trigger stop-loss buying, and the Dollar Index dropped to a one-month low, making commodities priced in the greenback more attractive for buyers holding other currencies.

Commodity Markets were supported by news that China’s manufacturing PMI rose to a seven-month high in November. Other Asian countries also posted improving PMI manufacturing numbers yesterday. The official November China PMI climbed for the third consecutive month, and has now reached 50.6, the highest level since April. The PMI for China calculated by HSBC rose to 50.5 from an initially reported 50.4. This up trend in China is likely to be confirmed by further economic indicators that are due to be published next weekend.

Eurozone finance ministers met yesterday to further discuss details of Greece’s latest bailout plan after Germany approved a fresh bailout package for Greece on Friday last week. The European markets and raw commodities were also lifted on an improving eurozone purchasing managers index, although the PMI still showed an overall contraction in November.

Greece announced yesterday that it would buy back up to 10 billion euros of its outstanding bonds at a price from 30 to 40 cents on the dollar. The positive market sentiment on this news underscored the bad condition of financial situation in Greece. Hedge funds increased bullish bets on commodities by the most since August as evidence that China is accelerating outweighed concern that U.S. lawmakers have yet to resolve an impasse over automatic spending cuts and tax rises. Germany, Europe’s largest economy, probably will face a recession as the sovereign-debt crisis roiling its neighbors extends into 2013, according to the Bloomberg Global Poll.

Physical Gold Market Overpowers Paper Players:
Data on the U.S. Mint sales of American Eagle Gold Bullion coins in November shows 136,500 ounces of gold coins were sold last month, up sharply from 59,000 in October and 41,000 from November 2011. November marked the second consecutive monthly rise after a dismal performance earlier this year. U.S. Mint sales of Silver Bullion coins in November topped the 3 million mark for the third straight month.

Sales of Silver Coins last month were 3,159,500 ounces, up marginally from 3,153,000 in October but more than double the 1,384,000 ounces sold in November 2011. Sales for 2012 to date are 32,107,500 ounces. There is a huge influx of new high-net-worth individuals that are buying a lot of gold, and they are taking physical possession of it. Political uncertainty due to a heated U.S. presidential race and $600 billion automatic cuts in government spending and tax increases early next year have boosted Gold Investment.

Excessive Debt leads to Recession or Inflation – Sometimes Both:
Gold and silver prices seem forming some near-term Bullish technical chart consolidation. With nothing much coming out on the looming Fiscal Cliff issue out of Washington, the market presently perceives there will be a last-minute agreement among US lawmakers to avoid the fiscal cliff disaster. Gold and silver market traders are starting to look ahead to next week’s last Federal Reserve FOMC meeting of the year, on December 10 and 11.

With the “Operation Twist” program ending by year end, the FOMC members will have to decide whether to extend the bond-buying program. Most traders are of the view that the Fed will continue to purchase U.S. Treasurys and implement QE4 at next week’s meeting. That would be Commodity Market bullish and especially more bullish for the gold and silver markets.

Low real interest rates and concerns about growth and debasement of fiat currencies will drive gold and silver much higher. Inflation will simply intensify because of the monetary debasement that’s picking up speed. The US can’t possibly get rid of the huge budget deficit because the economy in the US is barely moving right now with the $1.25 trillion budget deficit, as well as zero interest rates.

If they reduced any stimulus, either monetarily or fiscally, the economy would just start to plunge. A recession resulting from the so-called fiscal cliff not being averted could severely undermine gold’s appeal as a hedge against inflation. They will simply reach some compromise where they will kick the can down the road and they will make it look better than it is. A compromise will also have a limiting effect on gold prices, whereas the Agro Commodities, base metals and silver would be more preferred options available then.

China Gold Market:
China allowing counter gold trading between banks for the first time is a significant financial reform for the world’s second-largest buyer of gold. The move reflects the Chinese government’s latest effort to develop Shanghai into a major gold trading center, and mirrors similar developments in the country’s currency and oil markets. The introduction of interbank trading is intended to develop China into a liquid and market such as London, and demonstrates the government’s readiness to open the market to greater participation by international banks.

Given their trading volumes, Chinese banks already play a significant role in determining international gold prices, so the move will have a limited impact on prices. China offers a massive gold market, albeit one that is tightly controlled. The country is the world’s biggest gold producer and ranked as the No. 2 gold consumer in the third quarter of this year.

It has official gold reserves of 1,054 metric tons, the worlds sixth-largest, World Gold Council data show. But gold exports are banned and only a handful of banks hold import licenses. Until now, member banks have been able to trade physical gold between themselves on the Shanghai Gold Exchange, but the absence of an over-the-counter market restricted them from becoming market makers in gold.

In an over-the-counter market, transactions are quoted and conducted between parties on a principal-to-principal basis rather than being traded through a broker on an exchange. The Shanghai Gold Exchange is the world’s biggest platform for trading physical gold. The introduction of interbank trading represents only a “small step” in the government’s long-term plan for its gold market, but the initial stages of interbank trading are likely to be “very limited,” said Xie Duo, director-general of the central bank’s financial market department.

The gold exchange currently offers spot and deferred prices to more than 3 million individual clients, a senior PBOC official said this month. The opening up of the gold market comes as China is seeking to increase foreign investors’ participation in the nation’s crude-oil market. Chinese regulators said this month that they will allow qualified foreign institutional investors to trade crude-oil futures contracts planned for the Shanghai Futures Exchange.

The Shanghai Stock Exchange could launch Gold ETFs early next year if it receives government approval by the end of this year, the state-run China Securities Journal said last week, citing an exchange official.

Silver – The most coveted Investment for 2013: With a severe need for a secure hedge against inflation amid a developing recession, silver seems the BEST bet, as gold at already high prices will remain out of reach for most and without the necessary support, may under perform too. Silver is less than 1/40th the price of gold and with further price hikes, gold will soon get out of reach for most of the average investors or traders who are nonetheless searching for an inflation hedge also.

While gold frequently steals the show, silver till now has tended to be more volatile, leading the rallies as well as the dips in size. It is now a picture perfect opportunity for Silver to outperform all asset classes soon. There is economic weakness everywhere and there is no easy solution to this because the problem is excess debt. The only way to deal with this is to somehow have a debt clean-out, which implies a very long, ugly economic period.

Apart from use of silver for jewelry and coins, there are a host of medical applications ranging from dentistry to wound therapy while silver also tends to make its way into technological applications like photographic paper, batteries, photovoltaic cells in solar heating panels, and audio connectivity wires. Due to this multitude of utilizes, silver has continued to become a well-liked tangible asset, attracting investors from all over the world due to its many possible usages as well as its conventional function as a store of worth and an inflation hedge.

Investors have the choice of purchasing up silver coins or silver bars in order to acquire physical exposure or invest through Silver ETF or simply trade in paper Silver through commodity exchanges. Presently, just 6% of silver is utilized for investment while the vast majority goes to industrial utilizes, a third to jewelry, and also the rest to photographic utilizes.