Silver’s Surges 10% in 2 Weeks – Near Record in Euro Terms

Gold
Gold climbed steadily to as high as $1,153.70/oz in New York before reverting slightly to close unchanged for the day. It has risen from $1,150/oz to $1,158/oz in Asian trading this morning. Gold is currently trading at $1,157/oz and in euro and GBP terms, gold is trading at €864/oz and £753/oz respectively. Gold and silver have given up some of their earlier gains as the dollar rose and then fell today.

Gold ended slightly lower yesterday and took a breather after the gains seen this week and last week. Gold is set for a higher weekly close (some 3%) and is it at a three month high. In two weeks gold has risen from $1,090/oz to over $1,156/oz or by some 6% and would be expected to take a breather. However, given the improved technical picture and the strong fundamentals gold looks set to test resistance at $1,060/oz. Above this level of resistance, gold will likely again target the record highs seen in early December.

Physical demand for gold remains robust as seen in premiums in Asia and in the gold ETF reaching a record metal holding. With the sovereign debt issues set to remain prevalent for the foreseeable future, safe haven demand for gold is likely to continue.

Silver
Silver has risen from $18.08/oz to $18.34/oz this morning in Asia. Silver is currently trading at $18.33/oz, €13.70/oz and £11.93/oz.

Silver looks like it might be on the verge of breaking out and resistance is at $18.84/oz and then at $19.42/oz. A close above these levels should see silver target the record (nominal) highs of $20.88/oz seen in March 2008 when Bear Stearns collapsed.

Interestingly, silver has reached new record highs in euros. Silver traded at below EUR5.00 per ounce when the euro was launched in 1999 and is trading at EUR13.70 per ounce today.

Silver remains the laggard and has underperformed gold since it reached its March 2008 highs. This has changed in recent weeks with silver again beginning to outperform gold. The gold/silver ratio remains favourable to silver at 63 ($1,157/oz divided by $18.35/oz) and is falling. "Poor man’s gold" remains far from recent record highs and long term record (nominal) highs near $50/oz in 1980.

Silver could be the surprise outperformer in 2010 as it was in 2009. Silver’s industrial uses should mean that the gold/silver ratio will likely gradually regress to the average in the last 100 hundred years which is around 45:1. If the tiny silver market was to see real funds enter it than the ratio could return closer to the historical average of 15:1. It did this as recently as in 1968 and in 1980. This could result in silver surpassing its 1980 nominal high at $50/oz particularly were a short squeeze to develop and the concentrated short positions forced to close their substantial short positions. Indeed, should silver go parabolic again it could rise to over $130/oz which is its inflation adjusted high of 1980.

Silver remains very undervalued vis-a-vis gold and remains a contrarian play with little or no media coverage and little or no retail investors having any allocation to silver whatsoever.

Platinum Group Metals
Platinum is trading at $1,720/oz and palladium is currently trading at $510/oz. Rhodium is at $2,725/oz.

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Mark OByrne

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