Commodity Blog

Commodity Prices – Silver

Gold and oil rose today, as well as most commodities, as manufacturing in China and the United States expanded. Silver also gained. The China Federation of Logistics and Purchasing reported that the nation’s Purchasing Managers’ Index increased from 49.0 to 50.3 in December. The US PMI advanced from 52.7 to 53.9 last month.

Both commodities also gained on rumors that Iran made headway in creating nuclear weapon. Gold rallied as the rumors increased its appeal as a safe asset, while oil rose on concerns that sanctions against the country from the USA would disrupt shipments.

February futures for crude oil delivery advanced as much as $4.13 to $102.96 per barrel on NYMEX, the highest price since May 10. Brent crude surged from $108.38 to $112.07 per barrel today as of 23:18 GMT on ICE. Gold was up from $1,570.10 to $1,606.70 per ounce, while silver spot price went higher from $28.17 to $29.55 per ounce on COMEX.

The start of this week was an unpleasant one as most commodities took a great hit as concerns about Europe reemerged. The main reason for the pessimism was the warning from Moody’s Investor Service that it may downgrade the credit ratings of the eurozone countries. The European leaders attempted to address the problems during the summit on the last Friday, but the implications of the meeting will be felt over a longer term, not in an immediate future, so the rating agency wrote:

But in the absence of policy initiatives in the near future that stabilise credit market conditions effectively, Moody’s believes that the system remains prone to further shocks, which would likely lead to selective rating changes. As a result, Moody’s intention remains to revisit sovereign ratings of euro area and EU countries during the first quarter of 2012.

The Standard & Poor’s GSCI index of 24 commodities fell as much as 1.3 percent to close at 638.93 after earlier it reached 636.8, the lowest level since November 25.

Gold slumped from $1,707.50 to $1,663.90 per ounce on COMEX yesterday and traded today at $1,654.70. Silver slipped from $31.76 to $31.25 on the previous trading session. Copper was down from $3.5045 to $3.4460 per pound and traded today near $3.4435. Brent crude rose from $107.23 to $107.50 per barrel today on ICE after yesterday’s drop from $108.75 to $107.11 per barrel.

In this video Jim Rogers, investor, author, and financial commentator, explains his reasons to be long on commodities. He thinks that even in case of a recession commodities, especially gold and silver, can be assets of choice for traders as governments will likely start printing money, debasing their currencies, and securities may turn out to be bubble. Rogers also mentions that the gold standard isn’t likely to be introduced.

Bart Melek, Head of Commodity Strategy, TD Securities, explains in the interview his outlook for different commodities, including oil, natural gas, gold and silver. He talks about various factors, such as the European crisis, that have an impact on commodities. The video also mentions the place that commodities have in investor’s portfolio.

Concerns about Europe quickly returned to markets driving commodities down. Surprisingly, among precious metals only silver, the metal tending to profit less from uncertainty and pessimism than other precious metals, was able to gain.

There were bad news from Europe that justified the worries. The costs of Italy’s debt increased. Fitch Ratings warned that the planned 50 percent haircut of Greece’s debt can be considered a default:

An EU invitation to private investors in Greek government debt to exchange their bonds for new debt with a 50% lower notional value would likely result in a post-default rating in the ’B’ category or lower depending on private creditor participation.

The returned fears made most commodities, even precious metals, fall. The Standard & Poor’s GSCI Index of commodities dropped 1.3 percent. Some analysts argue that the decline wasn’t a start of a downward trend, but merely a correction after the strong rally on the previous day.

Gold declined to $1,743.50 from $1,746.60 per ounce on COMEX. Silver spot price advanced from $35.12 to $35.37 per ounce. Settlement of platinum fell to $1,649.60 from $1,657.0 per ounce.

Gold and silver reached the highest level in a month on the renewed concerns about the sovereign-debt crisis in the European Union.

The European leaders are planning to meet at the summit today to discuss the recapitalization of banks, boosting of the bailout fund and the participation of private bondholders. Traders are still waiting for some decisive answer from the European chiefs and without it the uncertainty eating away confidence and drive investors to safer assets, like precious metals.

The fundamental reports were also negative for traders’ sentiment and positive for gold. The European manufacturing and services industries contracted. The housing market, the manufacturing and the consumer confidence in the US weren’t improving either.

Gold rose from $1650.40 to $1702.10 per ounce yesterday on COMEX remained at this level today as of 3:35 GMT. Silver traded at $33.09 per ounce today, following yesterday’s advance from $31.74 to $33.22 per ounce.

The slump of silver in September left traders wondering if the precious metal lost all bullishness that was so apparent at the beginning of the year. It’s truth that the metal shows a tremendous volatility, yet bulls haven’t lost all hopes yet.

The credit problems in Europe can potentially increase demand for silver as a precious metal. The recovery in the US also isn’t certain. The attempts of central banks across the world to weaken currencies of their nations made commodities, and precious metal in particular, preferred assets for safer investment.

The role of silver as an industrial metal also isn’t forgotten. While the economic problems in the Western nations may prove negative for the metal, the robust economic growth in Asia provides a strong demand. China, the biggest consumer of the white metal among emerging markets, shows especially strong growth. The growth slowed somewhat at present, but that’s not completely bad as a slower rate of expansion decreases probability of a government’s intervention to cool the overheating economy.

Spot price for silver was at $30.73 per ounce today as of 3:35 GMT on COMEX, following the drop from $32.05 to $31.22 yesterday. The price slumped from $39.80 to $30.56 in the huger four-day drop in September. After the decline the price stabilized near $31.85.

The concerns about the credit crisis in the European Union continue to haunt markets and that helps to support prices for precious metals. Great Britain also has its share of problems that spur investors to buy precious metals as a safe haven.

Both the Central European Bank and the Bank of England left their interest rates unchanged, but expanded their bond purchases programs. The same monetary policy decision had a vastly different effect on currencies of the nations, boosting the euro, but weakening Britain’s sterling. Yet the fact the policy makers of European Union and Britain embarked on quantitative easing undoubtedly means problems in both of these regions and that’s beneficial for safer assets, like gold and silver.

The BoE was rather dovish in its outlook:

The weaker outlook for, and the increased downside risks to, output growth mean that the margin of slack in the economy is likely to be greater and more persistent than previously expected.

The ECB wasn’t optimistic, either:

The underlying pace of monetary expansion continues to be moderate. Ongoing tensions in financial markets and unfavourable effects on financing conditions are likely to dampen the pace of economic growth in the euro area in the second half of this year. The economic outlook remains subject to particularly high uncertainty and intensified downside risks.

Gold advanced from $1614.0 to $1652.0 per ounce on COMEX today as of 18:13 GMT on COMEX, rising for the second day. Spot price for silver jumped from $30.46 to 32.11 per ounce. Platinum settlement climbed from $1478.0 to $1507.0 per ounce.

Silver continued its biggest downward rally since May 2011, following the decline of the liquidity in the markets and the increased risk-aversion expressed even against the ”safe commodities.” The intraday low set today is the minimum level since November 2010.

The whole metals market can be described with a phrase “extremely bearish.” While previously the fall in the industrial metals would mean an uptrend in the precious metals, the recent trading sessions show that all metals can fall simultaneously and to do it very well. Although some analysts say that silver is falling because the investors have to close their position to cover the expanding stock market losses, silver has its own reasons to fall.

Last Friday, CME announced an increase of the margin requirements for the futures trading in silver. These new requirements take effect today. While the Federal Reserve is concerned with the stagnation in the economic recovery, there will be no new quantitative easing round, which means that the banks will have less cash to speculate on the gold/silver market.

Silver fell from $30.75 to $30.01 per troy ounce on the spot market as of 17:23 GMT today, following a drop to as low as $26.11/ounce during the early trading session. It lost more than 24% since Wednesday.

Commodities, led by metals, continued their slump. The leaders of the Group of Twenty nations have met in Washington to discuss the economic problems in the world, most importantly the European debt problems. The meeting had some positive effect on currency markets, but commodities didn’t paid attention to it. Perhaps, commodity traders simply don’t believe policy makers have means to prevent the global economy from sliding into a new recession.

The Standard & Poor’s GSCI Index of 24 commodities slumped 1.3 percent to 599.25 as of 15:47, following the drop to 594.12, the lowest level since December 2. CME Group Inc. (the owner of the COMEX exchange) increased margins on gold, silver and copper futures.

December futures for delivery of gold tumbled as much as $101.90 (5.9 percent) to $1,639.80 per ounce on COMEX, the biggest drop since March 2008. The metal posted the biggest two-day decline since February 1983 — 9.3 percent. Futures for delivery of silver in December slid $6.477 (18 percent) to $30.101 per ounce, the biggest fall since October 1979. December futures for delivery of copper fell $0.2085 (6 percent) to $3.28 a pound. The two-day decline of the metal was 13 percent, the biggest since October 2008.