Commodity Blog

Posts Tagged ‘bubble’

In this video, Liz Ann Sonders (Chief Investment Strategist at Charles Schwab) talks with Jack Otter (Executive Editor at MoneyWatch.com), discussing what may become the next bubble. Some danger is seen in the bond market. According to Sonders, gold is not in bubble, but traders should be very careful as the market has no sellers (buyers only market). Nevertheless she believes that gold can be a part of any investor’s portfolio. Commodity inflation is also discussed.

This video presents another point of view at the current silver situation. Via his sarcasm author shows that silver isn’t really a bubble and what happened during the first week of May wasn’t a burst, but rather a minor correction. Some interesting point about it.

In this commodity trading video you’ll see the silver bubble of 2011 dissected. The author of the video explains different stages of the bubble — from the very beginning (so called Stealth Phase) till the end of the bubble (Blow off Phase). Another topic if this video is a Bull Trap — a special sub-phase of a bubble, where it looks like the commodity is going to return to its super-rally but eventually ends up falling farther. Silver was (and probably still is) a favorite public investment asset, second maybe only to gold. Despite the bubble burst, silver is still trading well above its initial pre-bubble levels ($15-$17 per troy ounce).

Silver rallied to new all-time high levels today in a rapid 8-hour rally, but eventually failing to stabilize at the top and falling down below the Friday open level. Gold followed the same pattern but remained less volatile — it didn’t go up too far and didn’t decline to deep afterwards.

Deemed to be a safe haven investment by many market analysts and, more recently, by the average home-grown traders and investors, silver attracts capital inflow during the fear of inflation and uncertainty about the future of the US dollar. While today’s rally to almost $50/oz (on the spot market, futures market record of 1980 still remains unbeaten) was a natural continuation of the bullish wave caused by the US credit rating outlook change, the consequent correction is probably a result of a massive profit-taking process. It would hardly be a surprise to anyone if the commodity continues to new highs tomorrow.

The next driver for silver may be prepared by Fed Chairman Ben Bernanke, who will reveal the next monetary policy statement on April 27. Although the moderate analysts use the technical analysis data to suggest a huge bubble inflating in silver, the real-world fundamentals talk in commodity’s (and its respective bulls’) favor — the consumption is approaching the long-term maximums.

Silver fell from $46.66 to $46.26 per troy ounce on the spot market as of 14:59 GMT today. Before declining it went up to $49.73 per troy ounce — more than 6.5 percent intraday gain and also the highest spot market level in metal’s history.

Gold showed an impressive rally in 2010, but by the end of the year the precious metal experienced several drops, causing concerns that the rally is faltering. Is this just a temporary breather before another jump to records or gold started a way down?

The fundamentals as well as the sentiment look favorable for the metal. The experts from the International Business Times and the Mineweb name such favorable factors for gold: the quantitative easing of the Federal Reserve, the debt crisis in Europe, which forces the European Central Bank stimulate the economy of the European Union, general debasing of currencies by governments of different countries and worldwide uncertainty about global recovery – all this makes gold a very attractive asset to hold as a safe haven. As more and more investors flock to gold new problem arises: the lack of supplies. The old mines are drying out and the new ones aren’t going to be opened in sufficient quantities as there are no resources and technologies to quickly find the new gold deposits. And a growing demand from Asian countries, primarily from India and China, puts additional strain of dwindling supplies.

Despite all the favorable factors gold’s rally stalled recently. One of the reasons for weaker performance of the precious metal was a stronger dollar. The fact that gold is priced in dollars on markets and the recent rally of the greenback held gold prices from going much higher. Another reason for gold possibly being weaker is its current high price, which may drive investors away. Bears, as said on the Economist, also point out that the economic situation in the world should stabilize and the gold bubble will burst as the demand for the metal is mainly speculative and there isn’t nearly enough physical demand to justify such “outrageous” prices. Besides, there’s just no profit in keeping the metal as it’s not bringing interest, dividend, rent or some other form of income by itself like some other assets. On the contrary, safekeeping of gold incurs additional costs.

So, if you’re expecting improvement of the global economy you can start selling gold. But most economists wouldn’t approve such course of action. While such forecast as gold climbing to $5,000 aren’t widespread nowadays, more moderate forecasts, as outlined on the Morgan Gold, still promise gold to advance to $1,500 in the first half of the next year and rise to $2,000 by the end of 2011. Of course, corrections may be expected, especially if the interest rates would start rising, making other types of assets more attractive. Gold prices through the year may decline to $1,315 or even as low as $1,265.

This video is actually a video answer to the titular question of this post. Many traders are worried that the commodity price have already formed a new bubble and this bubble is about to burst, dragging stocks and other markets down with it. The author of this video doesn’t believe that the bubble is formed and that there is a significant drop ahead. This video points out the supply/demand ratio with the rising global demand and not-so-well rising supply in such a popular commodity as the crude oil.