Gold Bubble But made of steel

Monday 25^th April-2011 Silver was trading @ its all time high (75000/kg approx), and so was gold, speculations and sentiments were high in anticipation of the future course of Bull Run or a steep correction. Analysts gave a note of pause and caution as they foresee a correction happening which they were anticipating to happen since the rally started.

Silver has given returns like never before in the past one year or so, the price use to be around 23000/ kg almost a year and half ago and since then it has almost tripled. With this sudden rally people believe that it is a bubble and will burst one or the other day; I also see it as a bubble but bubble of steel J which means it is not going to burst.

The reason of sudden spurt in the prices of gold and silver is not only because of the consumer demand of the precious metals having gone up, but there are other factors that are fuelling the demand. Crude is constantly trading at a price tag of above 100$, globally inflation is a cause of concern and precious metals are viewed as a hedge against inflation.

It’s not that the gold and silver are rising in prices, but the fact is that the US dollar is slowly losing its place as the world's reserve currency. If the dollar were to be dumped as the world's reserve currency, severe inflation would result, since the purchasing power of the dollar and dollar denominated assets will diminish rapidly.

History has stories to tell that hard assets, especially gold, silver, and land retain the monetary values in times of severe inflation, hyperinflation, civil unrest, and war, and that’s why people buy gold and silver for this exact reason.

Gold and silver or for that matter any precious metal is not to be treated as stock and equities, rather they are to be treated as insurance; when the currencies are loosing shine.
We need to think; if this would have been a bubble then why the central banks around the world would be buying so much of it.

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Silver smiles with a Golden tooth

Gold and silver prices are breaching there historical records, largely being fuelled by global unrest, inflation and economic volatility. Gold Prices are shying a bit as compared to silver price which is literally on fire. With each passing day, silver is breaching its historic highs and rising by an average 1000 INR on a daily basis.

I happened to visit a jeweler shop last Monday as I was looking for a semi precious stone, out of curiosity I inquiring about the silver and gold prices and was in a state of shock to leant 64250/kg and 21850/ 10 gram respectively. I knew that silver is going to over shine gold in years to come, but will happen so early was never anticipating.

Today 7 days later (Monday 25^th April-2011) purest form of Silver is hovering around 73800 and gold around 22450. Silver has appreciated by 10% whereas gold hardly by 4%. All that will shine is silver

Though I’m not a trader in the precious metal arena but I believe that there are enough sentimental, global and economical factors to give support to the gold and silver prices, and if you ask me will the prices ease up? I will say “BIG NO”.

With the marriage season setting in and “Akshay Tritiya” on 6^th may-2011 there are enough reasons for gold and silver to scale up, Hindus believe Akshay tritiya as the most auspicious occasion to buy gold/ silver and usually start purchasing for marriage and other social functions.

Apart from the demand arising due to marriage season, indications of good monsoon will also add fuel to the demand, again pushing the price higher. Till the monsoon gets over there are no factors which can dilute the demand and so the price.

Of course There is some gap between the end of monsoon and next festival season during which the prices can have a set back only if inflation comes under control. But despite of all our measures we are not able to tame the inflation; these precious metals are considered as the best hedge against inflation and therefore prices will not come down till the point inflation is beyond our control.

Once Diwali season sets in no factor can downcast the prices and rising demand will further fuel the prices, looking at the overall scenario I think silver will touch 1 lac /Kg and gold to 25000/10 gm by the year end.

So if you are investor and having interest to buy; buy it now, before the rally reaches to the point of reversal.

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All that will shine is Silver!

An ounce of Gold is priced around 60 times to that of silver and you will be surprised to learn that silver is having better utility as compared to gold and there are less stocks of silver as compared to gold. With above facts in place the prices of gold Vis-à-vis silver do not compliment the real facts, I believe that the opportunity existing with silver are immense and no other commodity can be as much profitable as silver in years to come.

There are three interesting fact to compliment my though process,

1) There are not much dedicated mines for extracting silver the way there are mines for gold, coal, diamonds etc. Silver is an outcome of the mining activities happening globally for various reasons and not much of term as silver mines exist, which implies that if we wanted to increase the production of Silver suddenly we simply can’t.

2) Silver will be more profitable as compared to gold in the longer run because, Silver now a days is finding wider industrial application right from batteries, electric appliance, glass tint, pharmaceuticals etc; to catalyst to many reactions. Silver used in any of the industrial application is difficult to recover unlike Gold which can be recovered from the ornaments.

3) Today globally the silver inventory is around 250 million ounces and most of which is tied up and unavailable, today the silver inventory are lowest of last 200 years. Industrial requirement of silver is around 900 million ounces a year, and Mining and recycling fall short of providing the necessary silver.

Looking at this facts, silver outlook seems brighter but will it outshine gold is a debatable question and can only be answered in the time to come, but looking at the facts and figure Bull Run in silver will continue.

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