Silver is getting pummelled:
What does this mean?
Hedge funds and speculators who were long gold are trying to get a buffer of cash to soak up hits from the coming default cascade.
What does that mean for gold’s long term fundamentals?
Not much. The liquidation in gold is occurring parallel to a liquidation in stocks, meaning that the DJIA:AU and FTSE:AU ratios (etc) haven’t changed much. Here’s the FTSE 100 today:
The next few months may be tougher for silver.
From the FT:
“Gold and silver are very different beasts,” says Kathleen Brooks, research director at Forex.com. “Gold has surged to record highs in recent weeks, because it is a haven and it is a good store of value in times of economic uncertainty. By contrast, silver has industrial uses, so is much more closely connected to the global economic cycle.”
She says the threat of another recession has weighed heavily on the price of silver: “The grey metal’s uptrend in 2010 and part of 2011 was fuelled by expectations of a strong global recovery and also by weakness in the dollar.”
“While the dollar remains weak, the growth outlook has deteriorated markedly. Unless expectations for the global economy change or the US Federal Reserve embarks on more policy stimulus, then silver may be in the doldrums for some time.”
This is essentially the view I have expressed. Simply, global financial engineers and central planners do not have the stomach to watch asset price slumps, margin calls, liquidations, a cascade of defaults, and debt deflation. I expect gold to fully rebound to well over $2,000/oz once the next flood of central bank liquidity commences and the perspective shifts back to dollar debasement. Silver may be in the doldrums for a while longer, but silver is such an industrially critical metal that I fully expect industrial demand to keep the price significantly above 2008 lows.