Category: Precious Metals

Here is a pretty good explanation of how bull markets work. 

Source: Gold Seek
by Peter Schiff 

Over the past several days gold prices have plunged by over $60 per ounce and silver prices have dropped by close to $3 per ounce.Popular excuses for the carnage include lessening tensions in Iran, falling oil prices, and diminishing inflation fears.However, I am convinced that the decline has nothing to do with changes in the underlying fundamentals for either metal.In fact, with this week’s release of yet another record high monthly trade deficit and continued evidence of a rapidly deteriorating housing market, those fundamentals have never been better. How then do I explain the sharp recent declines?

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As I am writing this Gold is up $12 on the first day of US trading in September.  I have mentioned this a few times – September is usually an exciting month for Gold.  This article discusses the fundamental drivers behind Gold’s fall run. 

Source: Money Week
9/5/2006

Gold rose yesterday, to near $630 an ounce, due to “expectations demand will increase as jewellers stock up ahead of seasonal buying in India and as investors return from summer vacations,” reported Bloomberg.

“Gold has gained every September since 2000 as jewellers buy the metal for the winter holidays, the Indian wedding season and as investors in Europe and the US return to work after the summer,” the newswire continued.

Apparently gold has only fallen nine times during the month of September since it began trading on exchanges in 1975. As Ambrose Evans-Pritchard puts it in The Telegraph: “Even when [gold] churned ever-down from a peak of $850 an ounce in 1980 to $255 in March 2001, it usually managed to eke out a meagre counter-rally each September.”

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Source: Arab News

There’s a hidden link between gold and silver — which I believe should cause silver prices to soar more than gold in the next few years.

Despite fluctuations, gold prices have historically been around 16 times the price of silver. The logic behind this is simple: Gold is roughly 16 times rarer than silver inside the Earth’s crust, according to the American Geological Institute. That’s why almost every major world government in history set the value of silver at 1/16th the price of gold.

Based on this value, if gold costs $650, silver should cost around $41. But it doesn’t. Today if silver costs only $11 an ounce. That means right now, silver is historically undervalued by close to 300 percent. Right now, gold sells at a price 50 to 60 times higher than silver.

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