by Commodity Online
Investors liquidated large quantities of exchange traded funds (ETFs) in gold and silver as prices of these precious metals dropped in January in response to strong Chinese GDP figures and market nervousness in the expectation of more monetary tightening from the Chinese authorities, says a precious metals analysis from Standard Bank.
Where does the gold-silver ratio stands, and why investors are liquidating gold and silver ETFs? Here is an indepth analysis on gold and silver from Standard Bank:
"Silver’s high fix for January was the first of the month, at $30.67, before the gold-related slide took it to a low fix of $26.68 on 28th January. In early February silver bounced towards $29, but much of that improvement was short covering rather than fresh buying interest.
Similarly to gold, the physical market has been strong and tight; there have been times, in India in particular when, in the face of high absolute prices, silver has met more support than gold. Here too, however the “hot money” has held sway and as a result silver unwound part of what had been an over-heated position. We remain friendly for the longer term, but silver is in a long-term surplus and thus remains reliant on investor demand. Seasonal factors suggest that this will wane during February. Silver’s volatile nature makes it unwise to recommend a buy-on-dips policy in the short term; rather, it might be wiser to wait for clear evidence of price stabilization before considering taking exposure in this most volatile of metals markets.
The net long non-commercial and non-reportable Comex positions contracted by 15% between end-December and late January, to a ten-month low, before the price’s downward momentum slackened. This, through, unlike gold, comprised only an eight-month high in the outright short position, while longs actually increased in the latter part of the month, perhaps reflecting confidence that, in the medium term, prices will improve as the fall had been too swift. In early February the position had increased slightly under short-covering as longs bailed out again amid more nervousness.
Silver dropped 17% in euro terms during January before unwinding more than half that fall in the early February rally (safe haven demand for gold and economically inspired-dollar strength). In producer terms, the price average from the start of the year through to early February was 62% up in US$ term year-on-year, up 54% in C$ and 46% in A$.
Silver’s strong run in late 2010 (+72% from late August to the start of January) argued for a correction in price and, when gold faltered, a sharp drop ensued. This meant that silver was notionally paying more attention to the parameters governing gold than those that apply more closely to the industrial metals, since part of gold’s fall was triggered by improved economic confidence. Silver’s daily trading correlation with copper in January was 65%, as it was over the whole of 2010. The correlation with gold in January was 78%, against 58% for 2010. In the medium term, silver is likely to revert towards the industrial metals, but this is more likely to develop when volatility has subsided rather than in the immediate future. It should then also benefit from renewed investor activity towards the end of this year as result of resurgent inflationary fears.
The gold: silver ratio has traded between 45.3 and 49.6 since the start of the year, almost as narrow a range as in December, when the heavy contraction of 2010 was finally arrested. The narrow ranges suggest that the ratio has ceased to attract speculators’ attention of late, and the near-term prognosis suggest that it will continue to hold broadly steady. Silver’s lower unit price, and its semi-industrial base, suggest that silver may be the first to move higher in the medium term. For this reason It is worth watching the index as a lead indicator for trend shifts and developments in both metals; this suggestion is also well founded historically. Silver frequently leads gold when a new trend is developing.
Both gold and silver ETFs have come under liquidation since the start of the year although, on a proportional basis, the silver redemptions have been smaller than those of gold. There was some buying right at the start of the year, but since then the selling has been constant, with just one day when there were any purchases of note. This was during the third week. It came in the wake of a sharp drop in price (from $29 to $27) in response to strong Chinese GDP figures and market nervousness in the expectation of more monetary tightening from the Chinese authorities.
Sales resumed swiftly thereafter, however and holdings in early February stood at 14,221 tonnes, a fall of 577 tonnes in five weeks. Peak holdings were on 5th January this year, at 14,846 tonnes and so the subsequent contraction represents 4% of the maximum. A stabilization in these funds may well be an important indicator of sentiment and could trigger more short covering, but trading conditions in the silver market overall are likely to remain volatile during February."
Where does the gold-silver ratio stands, and why investors are liquidating gold and silver ETFs? Here is an indepth analysis on gold and silver from Standard Bank:
"Silver’s high fix for January was the first of the month, at $30.67, before the gold-related slide took it to a low fix of $26.68 on 28th January. In early February silver bounced towards $29, but much of that improvement was short covering rather than fresh buying interest.
Similarly to gold, the physical market has been strong and tight; there have been times, in India in particular when, in the face of high absolute prices, silver has met more support than gold. Here too, however the “hot money” has held sway and as a result silver unwound part of what had been an over-heated position. We remain friendly for the longer term, but silver is in a long-term surplus and thus remains reliant on investor demand. Seasonal factors suggest that this will wane during February. Silver’s volatile nature makes it unwise to recommend a buy-on-dips policy in the short term; rather, it might be wiser to wait for clear evidence of price stabilization before considering taking exposure in this most volatile of metals markets.
The net long non-commercial and non-reportable Comex positions contracted by 15% between end-December and late January, to a ten-month low, before the price’s downward momentum slackened. This, through, unlike gold, comprised only an eight-month high in the outright short position, while longs actually increased in the latter part of the month, perhaps reflecting confidence that, in the medium term, prices will improve as the fall had been too swift. In early February the position had increased slightly under short-covering as longs bailed out again amid more nervousness.
Silver dropped 17% in euro terms during January before unwinding more than half that fall in the early February rally (safe haven demand for gold and economically inspired-dollar strength). In producer terms, the price average from the start of the year through to early February was 62% up in US$ term year-on-year, up 54% in C$ and 46% in A$.
Silver’s strong run in late 2010 (+72% from late August to the start of January) argued for a correction in price and, when gold faltered, a sharp drop ensued. This meant that silver was notionally paying more attention to the parameters governing gold than those that apply more closely to the industrial metals, since part of gold’s fall was triggered by improved economic confidence. Silver’s daily trading correlation with copper in January was 65%, as it was over the whole of 2010. The correlation with gold in January was 78%, against 58% for 2010. In the medium term, silver is likely to revert towards the industrial metals, but this is more likely to develop when volatility has subsided rather than in the immediate future. It should then also benefit from renewed investor activity towards the end of this year as result of resurgent inflationary fears.
The gold: silver ratio has traded between 45.3 and 49.6 since the start of the year, almost as narrow a range as in December, when the heavy contraction of 2010 was finally arrested. The narrow ranges suggest that the ratio has ceased to attract speculators’ attention of late, and the near-term prognosis suggest that it will continue to hold broadly steady. Silver’s lower unit price, and its semi-industrial base, suggest that silver may be the first to move higher in the medium term. For this reason It is worth watching the index as a lead indicator for trend shifts and developments in both metals; this suggestion is also well founded historically. Silver frequently leads gold when a new trend is developing.
Both gold and silver ETFs have come under liquidation since the start of the year although, on a proportional basis, the silver redemptions have been smaller than those of gold. There was some buying right at the start of the year, but since then the selling has been constant, with just one day when there were any purchases of note. This was during the third week. It came in the wake of a sharp drop in price (from $29 to $27) in response to strong Chinese GDP figures and market nervousness in the expectation of more monetary tightening from the Chinese authorities.
Sales resumed swiftly thereafter, however and holdings in early February stood at 14,221 tonnes, a fall of 577 tonnes in five weeks. Peak holdings were on 5th January this year, at 14,846 tonnes and so the subsequent contraction represents 4% of the maximum. A stabilization in these funds may well be an important indicator of sentiment and could trigger more short covering, but trading conditions in the silver market overall are likely to remain volatile during February."
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