• PM Bulletin : Silver and Gold

    There’s no doubt silver has had a good run over the past five months. Ten days ago it topped $18 per ounce having begun this year trading below $14. In mid-December it made its lowest close ($13.65) since the summer of 2009 for a low to high gain of around 32%. Silver has benefited from all the fresh interest that we’ve seen in gold which was up 24% over the same period. The two precious metals generally move in the same direction over time, although silver tends to be far more volatile than gold and so not for traders of a nervous disposition. There’s been plenty of chatter concerning the outlook for gold recently, so much so that it is once again becoming a mainstream topic for various business-related TV channels and newswires. A number of analysts have pointed out that gold’s appeal increases in a world where negative interest rates become more widespread. When you have around $7 trillion-worth of government bonds (hat tip: Bloomberg) trading with negative yields (in other words, you get back less than you invested) there’s no “lost opportunity” cost in holding gold even if it pays no interest. And for anyone considering stuffing cash under a mattress (or in a safe as Japan’s citizens are doing in increasing numbers) diversifying with a few ounces of gold makes perfect sense. At a time when investors are beginning to doubt the competence of central bankers, owning some gold as insurance seems like a good idea. Gold is both a store of value and medium of exchange and the same is true for silver. Yet silver is more abundant and therefore cheaper. So although it has uses as a medium of exchange, it’s less convenient than gold as a store of value. But one thing that fans of silver point out is its numerous applications in industry and elsewhere, yet because of its abundance and relative cheapness it doesn’t get recycled as gold does.

    Technically silver is running into resistance around $18 per ounce. As noted earlier it has had a good run since the beginning of the year. But looking at a longer-term chart we can see it has a lot of work to do if it’s ever to get back to the highs of 2011.

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