Silver – The cheap proxy to Gold or also generally called as “Gold’s Poor Cousin” or the Poor Man’s Gold, will no more get referred to as a second option soon enough. Gold Prices are up 5.9% this year while Silver Prices outperformed & gained 8.1%. Silver is a Precious Metal with a major Industrial demand, unlike Gold which relies mostly on its Safe Haven investment status & thus will make a separate niche for itself soon now. Silver enjoys the benefits of both worlds – the Safe Haven investment demand & the increase in physical demand on Industrial Growth. I expect Silver to gain momentum based on various factors for the first half of 2013 & Silver Investment will gain considerable ground & Investor attention. In fact Silver offers the most attractively priced Safe Haven investment now. With Gold Prices set to rise at the start of 2013, Gold may soon be a costly investment option for the average trader or investor. Higher Gold Prices may drive Investor demand to Silver. Investor attention in Silver is generally in tandem with rises & dips in Gold. But this market ideology may see a sharp contrast in the coming year. A lot of analysts yet are of the view that investment demand in the Precious Metals Group has further room to increase in the coming months if interest in Gold Bullion recovers. I expect industrial demand to pick up in the first half of 2013 by anywhere between 5.5% and 7.75%. Chinese economic growth seems to be rebounding which is a major demand source for Base Metals. A report by the Silver Institute also confirms that industrial demand for Silver is expected to rebound after a decline this year. Thomson Reuters GFMS looks for a bounce by 6.5% to 484 million ounces in 2013 as the global economy recovers. Industrial Silver uses are expected to rise to 57% of total silver fabrication in the next couple of years from 54% last year. Silver ETF demand combined with physical Silver demand will outpace the supply, at least for the next 2 to 3 years. Silver may easily rise to the peak achieved in 2011 at around $50 but investor appetite will ultimately take it further as that will solely be the driver of Silver Prices at that moment. With less than expected movement in Gold, investor appetite may solely remain focused on Silver, taking prices to historic highs. As observed in the past few weeks of 2012, the risk sentiment remains generally buoyant & the same may increase based on the ultra loose monetary policy adopted by the US Federal Reserve & from other key central banks from Japan & China to the US.
Almost every Gold Bull is convinced; Gold will hit $2000 in 2013. Historically, Gold and Silver have shot up in the year next to the one in which the US Presidential Elections are held – that’s 2013. The US risks sovereign credit downgrades if the nation does go over the Fiscal Cliff if the issues are not resolved before year end. The US Dollar index hit a three-month low last week. Gold Bullion investment is fear induced – As a hedge against potential inflation, debasement of major currencies, continued accumulation of Gold by central banks and fears that ratings agencies may downgrade US debt if not satisfied with Washington’s Fiscal restraint. Silver can carry off these responsibilities with equal ease, along with value addition of Industrial demand & attractive pricing, vis-à-vis Gold. Most market analysts expect Gold Prices to hit the $2000 level in 2013. Let’s accept that Gold does hit this level. In that case Gold, now at $1660, gets appreciated by 20 – 25% rising to $2075, beating its earlier lifetime high of $1925. At the same time, Silver, now at $30, needs to rise by a minimum of 70% to rise ONLY to reach its earlier high of $50. Any rises above this will be in ADDITION to 70%. Need I say more? I do not say that Gold does not seem attractive at current lows. Gold will rise & I surely have taken some positions in Gold, but far small & petty in size as compared to Silver. Investors would move out of Gold & enter Silver investments when the huge growth prospects are realized. This would in fact add to the upside ceiling pressure to Gold Prices.
There have been a number of QE programs announced before & in fact limitless QE was in Fashion in 2012. This practice of mindless ultra loose monetary policy will now surely show effects as Hyper Inflation rears its ugly head, amid several nations undergoing Austerity measures & heightened Unemployment. Inflation will boom once this massive Quantum of mindless Solace finds its way into the markets. Raw commodity prices will hit the roof. Prices of Base Metals will shoot up on illusions of a healthily recovering Economy. Gold generally does not pick momentum when economy is accelerating up as the markets are in Risk ON mode. Gold Bullion gets favored when Inflation is rising & at precariously high levels. But this time since Gold Prices will also be at their all time highs and the market would have no other option except Silver to run to. Silver trade has been known to be extremely volatile, but that is so because it is a much smaller market in comparison to Gold. The Silver trading market has never been a fundamentally driven one but a trend follower. When a larger number of trend-following momentum traders come into play, Silver trading movements get exaggerated. With the year close to an end, markets face continued uncertainty & investors hope for a miracle solution to the Fiscal Cliff in the next 3 to 4 days. While uncertainty is in the driver’s seat, there could be some more dramatic downside spikes in Gold and Silver. I would not like to see these go wasted.
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