Wednesday, July 25, 2012

Silver Chart: Rallies vs Corrections (London PM Fix)

Here is an update to a chart I created and posted around 6 months ago.

It shows rallies and corrections in Silver as per price at the time of the London PM Fix (so is not absolute in terms of intraday lows and highs).

The last time I posted the chart the PM fix pointed to September being the low point, but updated numbers show that a lower US$26.12 was recorded on December 29th, 2011.

What the chart and data doesn't show is that a lower intraday price price was recently made (only by a couple of cents according to Incredible Charts) on June 28th, 2012. So while we haven't seen a fall as large as the 2008 correction in % terms, it has certainly been drawn out longer, by some 6 months or so as the price of Silver bounces along the bottom at a little over $26.

See below for the chart (data sourced from Perth Mint website):

CLICK CHART TO ENLARGE


If we see a lower London PM Fix (than the $26.12 recorded December 29th) in the near future then the length of the correction will be extended substantially.

While this is possible, I think it's probable that the recent intraday low on June 28th marked the bottom of this correction and we are likely to see higher prices from here:


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Monday, July 23, 2012

Australian Houses: Gold / Silver Ratio - June Update

It's been almost 6 months since updating these charts and although they haven't change dramatically I thought I'd run through a quick update.

You can see previous charts on the blog here:


Another post which may be of interest was the below where I looked at how much better off someone saving in Gold and Silver could be over several years while waiting for the correction in house prices to play out:


Of course actual results may vary depending on how your local area performs and whether Gold/Silver perform as well over the medium term as I expect them to.

Data source for below charts: 

Key Figures:

Sydney (Ounces to buy a house)
Precious Metals Peak (January 1980): 103oz Gold, 1811oz Silver 
Housing Peak (February 2004): 1100oz Gold, 69,143oz Silver
End of 2011 (December 2011): 403oz Gold, 22,019oz Silver
Middle of 2012 (June 2012): 418oz Gold, 23,968oz Silver

Melbourne (Ounces to buy a house)
Precious Metals Peak (January 1980): 67oz Gold, 1181oz Silver 
Housing Peak (February 2004): 661oz Gold, 41,538oz Silver
End of 2011 (December 2011): 353oz Gold, 19,264oz Silver
Middle of 2012 (June 2012): 349oz Gold, 19,994oz Silver

Brisbane (Ounces to buy a house)
Precious Metals Peak (January 1980): 62oz Gold, 1091oz Silver 
Housing Peak (February 2004): 600oz Gold, 37,696oz Silver
End of 2011 (December 2011): 263oz Gold, 14,336oz Silver
Middle of 2012 (June 2012): 259oz Gold, 14,840oz Silver

The average prices for Gold and Silver fell from AUD$29.80 and AUD$1626.98 in December 2011 to AUD$27.80 and AUD$1592.29 in June 2012, a fall of 6.7% and 2.1% respectively which in part explains the poor performance of the metals in relation to housing over this 6 month period.

In $ terms Melbourne houses recorded a fall of around $20,000 from December 2011 to June 2012, Brisbane a fall of $15,000 and Sydney saw a rise of $10,000. 

Once converted to their respective Gold and Silver ratios none of the cities saw a large move, more so consolidation near current levels.

In Silver all ratios saw an increase, meaning that in all cases houses outperformed Silver (even though prices in $ terms fell in Melbourne and Brisbane, the drop in Silver price was greater). Gold outperformed slightly in comparison to Melbourne and Brisbane houses, but the rise in Sydney house prices (and small fall in Gold price) saw Gold bettered.

While housing has largely outperformed the metals over the past 6 months I expect this will change considerably in the not too distant future. As I've recently pointed out on the blog several times I believe that the correction in Gold and Silver is nearing an end and we could soon see an explosive move higher. The fundamental drivers behind the precious metals bull market are still in place and providing Gold and Silver remain above their important technical support levels (US$1500/$26), we should see these ratios drop (to the benefit of those holding Gold and Silver) over the last half of the year as spot price moves higher:



CLICK CHART TO ENLARGE

CLICK CHART TO ENLARGE

CLICK CHART TO ENLARGE


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Friday, July 20, 2012

AUD Gold Price Falls Below Support

I have used the weekly chart for Australian priced Gold on several occasions recently to indicate what I consider a "buy zone" (for example in this post 6 months ago), a price band where I am comfortable purchasing Gold based on the longer term (since mid 2007) trend higher.

So what about if Gold priced in Australian Dollars falls below the trend and support on the chart as it has done over the past couple of weeks?

CLICK CHART TO ENLARGE
Are we likely to see traders drive the price lower given the technical breakdown on this chart?

The issue with such an expectation is that the price of Gold in Australian Dollars is not driven by those trading it as an individual security (e.g. those trading PMGOLD or GOLD on the ASX are not moving the price), but it is instead a derivative of the AUD/USD exchange rate and the price of Gold in US Dollars. 

The price of Gold in Australia can be moved by various influencing forces:

Strength/Weakness in the Australian Dollar
Strength/Weakness in the US Dollar
Strength Weakness in the price of Gold (priced in US Dollars)

Are traders likely to try and influence all of these securities in order to push the AUD price of Gold lower, trading the break below support on the chart? Of course not.

That said, could short term trends in the contributing forces for the local price of Gold continue to send the price lower?

The Australian Dollar (AUD/USD) has seen a large push higher from the lows of early 2009:

CLICK CHART TO ENLARGE
The exchange rate is currently range bound and has been for a couple of years.

Recent strength in the Australian Dollar is partly a result of recent central bank diversification into the Australian Dollar (such as these instances reported on MacroBusiness: Czech Republic, Germany), as well as investors seeking exposure to one of the (seemingly) strongest economies (for now) around given the slowdown being experienced in most other developed countries.

It's unlikely that the Australian Dollar will trade above resistance of $1.11 against the USD and it's more likely to trade lower as our two speed economy continues to take it's toll on the larger populace. So in my opinion there is limited upside for the Australian Dollar which reduces the potential for the AUD/USD exchange rate to influence the AUD price of Gold lower.

Strength in the US Dollar (Index) managed to push it to a new high recently, something that I didn't expect given the wildly bullish sentiment (taking the contrarian stance that it is at or nearing a top), however has since rolled over and may struggle to breach the 84 level to the upside.

I have seen it suggested that the price of Gold is simply an anti-(US)Dollar, but I think this is an attempt to oversimplify a bull market in which Gold is rising in all currencies (as trust in practically all fiat currencies deteriorates). A measurement introduced by Kitco shows the reality over the last 5 years where Gold has increased in value by the same amount measured against the same basket of currencies that make up the USDX as priced in USD alone:


The Kitco Gold Index has one purpose, that is to determine whether the value of gold is actual, a reflection of changes in the US Dollar value, or a combination of both.

The U.S. Dollar Index® represents the value of the US Dollar in terms of a basket of six major foreign currencies: Euro (57.6%), Japanese Yen (13.6%), UK Pound (11.9%), Canadian Dollar (9.1%), Swedish Krona (4.2%) and Swiss Franc (3.6%). It is an exchange traded (FINEX) index and has become a standard used worldwide.

The Kitco Gold Index is the price of gold measured not in terms of US Dollars, but rather in terms of the same weighted basket of currencies that determine the US Dollar Index®.

Since the Kitco Gold Index has no US Dollar component it needs to be compared to the actual US Dollar price to give it some perspective.


CLICK CHART TO ENLARGE
Gold (priced in USD) has continued to trade sideways for the past couple of months, but is yet to breach the (potential) bottom that I suggested was made in mid May (see these two posts: May 18th, May 20th). 

Gold continues to trade within a descending triangle pattern which if broken to the downside does have some nasty implications from a chart perspective, however given depressed sentiment in the precious metals sector I suspect the downside will be limited and a drop below US$1500 is more likely to be a short term false break to run stops, rather than an indication that Gold is heading to $1200-1300 as a few are suggesting from the chart pattern. That said those engaging in a "buy the dip" strategy and plan to hold through any short term corrections should mentally prepare themselves for a lower Gold price and have cash free ready to buy more.

US Gold price aside, those watching the AUD price chart should not be concerned by the break in support. Unless the USD price breaks below support at $1500 (which would indicate potential for further downside) then the lower AUD price should be a seen as an opportunity to buy more at last years prices.

-----------------------------------------

On another quick point, there was a report recently released (by Erste Group Research) on the Gold market which I would recommend all read or at least flick through (Follow me on Twitter for more timely updates and resources such as this: @BullionBaron). Find the report at the link below:


The report covers the Gold market from many different angles over 120 pages.

Many mainstream economists and commentators have been quick to dismiss Gold. In one recent example Stephen Koukoulas went as far as comparing Gold to a can of baked beans, but as the report above points out (one of many arguments for Gold), Gold is far from just a doomsday asset:

Gold is often called the investment of doomsayers and chronic pessimists (“fear trade”). This component is currently presented to the public as the only reason for the gold bull market. However, this point of view fails to acknowledge the fact that China and India are the driving forces on the demand side. Real interest rates remain negative in both countries. Basically, local investors are very limited when it comes to investment opportunities for their savings. Gold has been a time-tested store of value for centuries. The traditionally high affinity for gold and rising net worth will support demand in the long run. Whoever expects incomes in China and India to continue rising and real interest rates to remain negative or Gold is a beneficiary of rising incomes in China and India low, will by default recognise gold as the beneficiary of this development (“love trade”).

It's somewhat ironic that Stephen has used China and India's growth as a crutch to support his optimistic view on Australia, while dismissing (by omission, not directly) that these two developing economies also support a rising Gold price.



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Tuesday, July 17, 2012

Perth Mint 2013 Lunar Snake Coin Pictures Leaked

See full details in this post at Silver Lunar:

Perth Mint 2013 Lunar Snake Coin Pictures Leaked

Earlier today I put up a post on Silver Lunar about the upcoming release of the 2013 Lunar Snake Coins from Perth Mint (following this post earlier in the year):
Although the official designs have not yet been released, we can get some design cues from the ComLaw submissions as previously posted about earlier this year:
The design for the 2013 Australian Lunar Year of the Snake (10kg, 1kg, 10oz, 5oz, 2oz, 1oz and 1/2oz) silver bullion coins consists of a representation of a snake entwined on a branch, surrounded by a pattern of lines.
The design for the 2013 Australian Lunar Year of the Snake (10kg, 1kg, 10oz, 2oz, 1oz, 1/2oz, 1/4oz, 1/10oz and 1/20oz) gold bullion coins consists of a representation of a snake resting on grass with bamboo at its side, surrounded by a pattern of lines.
Some might remember that the design for the Perth Mint 2012 Lunar Dragon was in fact leaked a couple of months before the release date and official unveiling, so keep your eyes peeled.

Although the description for the 2013 Silver Lunar Snake reads like it could be a repeat of the 2001 Gold Lunar Snake (snake entwined on a branch, see picture below), I have it on good authority that they've gone with a completely new design for the silver coin this year.
After I posted the above at Silver Lunar someone added a comment below linking to images of the Perth Mint 2013 Lunar Snake Coin designs (both Silver and Gold variants), so thought that was worth a cross post here (for those interested in seeing the designs (they are proof type by the look, but images should remain the same for the bullion coins):

Perth Mint 2013 Lunar Snake Gold & Silver 1oz Coins

[At request of Perth Mint the images were removed until official release, now out of embargo they have been reposted]

The bullion coins will be available from release on September 3rd, 2012, with other numismatic coin variants likely to follow soon after.

Signup for Silver Lunar email notifications if this coin series is of interest:


Or alternatively add me on Twitter as all posts are linked to in tweets:

https://twitter.com/bullionbaron


As I've mentioned here in the past, most blog posts on Lunar Series coins will now be posted on another site which I launched around 6 months ago (www.silverlunar.com). Silver Lunar is dedicated specifically to information and news about Lunar Series coins (note also that there is a separate mailing list for post notifications). However from time to time there will be something worth a cross post here as well (such as the above)...



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Thursday, July 5, 2012

Explosive upside potential for Silver

A bit of a short post ahead, but I see it more as a continuation of my last post:


Since this post we saw Silver continue to bounce out of it's near $26 low. It closed above the short term down trend resistance that I spoke about at $28 (and has been bouncing around just above that level during quiet July 4th trading, US market closed). Next resistance is at $32 and a solid breakout above this level should see Silver having a sustained rally.

Further to the charts (holding above strong support, oversold), sentiment (very bearish) and the fundamental drivers continuing (money printing, "debt can" kicking), I would strongly advise you consider the below video from Gold Gold Report (h/t BlackSheep on Silver Stackers) which looks at the latest COT (commitment of trader) report for Silver:


Cliff notes:

Commercial short positions as percent of total open interest at low levels not seen since 2001 when Silver was $4.

Swap Dealers at record net long position in Silver futures.

Managed Money short position in Silver at record high levels (potential for massive short covering).

Managed Money net position in Silver at around same level seen in the 2008 Silver crash.


Basically the COT data suggests that the market is setup and ready for an explosive upside rally, potentially as large as or if not greater than the rally from the lows seen in late 2008, as I covered in my previous post:
Within 4 months of the $9 low in October 2008, the price of Silver had rallied over 60% to almost $15. A price move like that today would take us back into the $40s and I wouldn't be surprised to see such a move over the coming months if the European situation has been stabilised.
With all this in mind, all we need is a trigger to set off the explosive upside potential for Silver. There are several events/announcements which could ignite the rally over the next two days. Two of them are tonight (Thursday night Australian time):
Traders were waiting for key monetary decisions from the European Central Bank (ECB) and Bank of England (BoE), expected today.
The ECB is expected to announce an interest rate cut while the BoE is expected to announce a STG50 billion ($A76.78 billion) stimulus package to boost recession-hit Britain. Herald Sun
Any action from Europe or UK which suggests that the money printing/easing will continue to kick the can will likely result in risk assets rallying (inclusive of Silver).

And further to this we will see jobs data (unemployment update for June) released Friday in the US (Friday night Australian time). It was just following this release in early June that Silver saw a strong rally to test $29.50 before falling back. A poor result from the jobs data could stoke further speculation that the Fed will announce further easing measures come the next FOMC meeting in August.

My short term trading history could be considered a mixed bag at best, but I have taken a position in "paper" Silver this morning ($28.15) via CFDs with a stop just under $26. I sure wouldn't suggest you follow me blindly into the trade, but I am just using this as an example of how confident I am that the bottom is in for Silver with the recent back test of support (now forming a triple bottom) and potential now for some exciting upside action.

I rarely take a short term position or even talk in this way about short term potential, however the opportunity to buy these price levels may not come around again in this bull market (just like we haven't seen a $9 price since 2008). However, if for some unforeseen reason Silver does drop below $26 the potential is still there for some significant downside to the next level of support. So take care!


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Sunday, July 1, 2012

An ounce of Gold for your thoughts on Silver

I just had a look back over my recent posts on the blog and noticed that the last 5 have been on property, you could be forgiven for forgetting the name of this blog is "Bullion" Baron and not "Property" Baron!

So back to regular scheduling.

Those keeping score over the last couple of months will be aware that I've had a few good calls recently. The day after the capitulation and $1526 Gold print in mid May I suggested the bottom was in for the metals. Although Silver has now put in a slightly lower low, Gold has managed to hold well above. I wrote this second post following up with some further thoughts a couple of days later talking about the negative main stream media stories that were circulating about Gold, further hardening my contrarian stance that Gold was ready to trade higher.

In a follow up post on June 3rd I suggested that the USDX had just put in a major top (reached around 83.5) and it has traded below this peak since. Quite a few traders have been talking about the USDX heading back to the same level seen in early 2009 and again in 2010 (around 88-89), but I just can't see it happening with such extremely bullish sentiment levels unless there is a major catalyst (e.g. further breakdown in the Eurozone, which is looking even less likely with results of the Thursday/Friday summit). I expect the top is in for the USDX and it's decline will assist the ability of Gold, Silver and other risk assets to trade higher.

In the same post above on June 3rd I also correctly guessed that:
Greece will vote for the pro-bailout/austerity parties and will remain in the Eurozone (for the time being!).

The Fed will continue Operation Twist, but won't yet engage in new asset purchasing.
So what next?

I think the results from the Euro summit have the potential to drive a fairly significant rally in risk assets/commodities (which Silver and Gold have been trading as for a while now). If for no other reason than they are particularly depressed and looking for a catalyst to push them out of these oversold levels (e.g. on my Twitter account last week I posted a chart for Oil sentiment showing it's oversold level).

While I don't think bailing out banks (debt to replace or raised in addition to existing debt) is a long term solution to the problem, I think the market will see it as Merkel caving to the demands of Italy and Spain. Cracks are showing in her tough exterior and this Summit proved that when push comes to shove she is prepared to budge.

How is Silver looking at present? 

Sentiment in Silver was depressed to extremely low levels in the past week as the price fell back to test support at $26 (Sentiment chart from 'The Short Side of Long'):

CLICK CHART TO ENLARGE
On the weekly chart the RSI was showing Silver trading at oversold levels not yet seen in this bull market (including during the 2008 crash), chart from 'Smart Money Tracker Premium':

CLICK CHART TO ENLARGE
This weekly chart shows the level of support the $26 mark has provided for Silver over the past 18 months:

CLICK CHART TO ENLARGE
It also shows what could be a descending triangle. If the price of Silver broke and closed below the $26 level it could force a particularly nasty drop to the next major support levels around the $18-20 mark. While I don't expect this given how oversold Silver is, it would pay to be mentally prepared for such a drawn down when purchasing at current prices.

The daily chart shows Silver bouncing sharply off the $26 lows:

CLICK CHART TO ENLARGE
To break above the short term downtrend a close above $28 would help and above $32 to clear the downtrend from the April 2011 peak. Of course even a close above these resistance levels is not a guarantee that it will hold... in late February the price broke above the downtrend line but wasn't able to hold.

On the monthly chart there is a flag setup, although it would allow for further downside to low $20s:

CLICK CHART TO ENLARGE
The current sentiment on forums and sites that I frequent is bearish with quite a few leaning toward an expectation there is further downside to come (some with reasonable arguments made). Some self proclaimed gurus are all out of their Silver position with the expectations that it drops to low $20s or even further (with little to no reasoning provided, e.g. scaremongering). 

What do I think Silver is likely to do over the rest of the year?

While I don't claim to be a guru or to be able to predict the future with 100% accuracy, I think there are strong signals pointing to a bottom being in for Silver.

I was a heavier buyer of physical Silver at the lows seen in late 2008. I am a buyer at current levels and I think $26-28 Silver will be seen as a catch when the price is much higher in the months and years ahead. 

Those who bought Silver in late 2008 at US$11 instead of catching the exact bottom at US$9 are probably not all that concerned that they didn't catch the exact bottom, they are happy they got in before the price multiplied over the years following. 

Within 4 months of the $9 low in October 2008, the price of Silver had rallied over 60% to almost $15. A price move like that today would take us back into the $40s and I wouldn't be surprised to see such a move over the coming months if the European situation has been stabilised.

Time will tell whether I am right, but I am a buyer at current prices and will be a buyer if the price falls further given the bubble prices that are likely to develop with further insane policy decisions from the central bankers.

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