Gold And Silver Bubble? - Some Retail Investors Taking Profits And ETF And COT Data Suggest Otherwise

Tyler Durden's picture

From GoldCore

Gold and silver are tentatively lower this morning despite the dollar
and especially the yen being under pressure. The possibility of Japan
being downgraded has seen the yen join the dollar under pressure and
gold has risen to over 124,000 Japanese yen per ounce, some 2% below
the record nominal high just over 126,000/oz.

Gold in Yen - 1 Day (Tick) GoldCore
Gold in Yen - 1 Day (Tick)

Japan’s public finances were already very poor prior to the earthquake
and nuclear catastrophe and are set to worsen considerably, which
should see the yen fall sharply versus gold.

Sovereign debt risk remains elevated in the eurozone and the cost of
servicing peripheral nations’ debt continues to rise. The cost of
insuring debt sold by Greece, Portugal and Ireland rose to records this
morning as have bond yields in Greece which have leapt to new records –
over 16% on the 10-year and 25% on the 2-year. Irish and Portuguese
10-year yields have risen to 10.63% and 9.65% respectively.

Cross-currency Table GoldCore
Cross-currency Table

Sovereign debt risk can now be seen in the eurozone but also in Japan
and the US, and as long as sovereign debt risk remains elevated,
precious metals will continue to be bought as hedges and for safe haven
purposes. This should lead to the continuation of gold and silver’s
secular bull markets. Although, participants should as ever realise
that there will be corrections – some of which can be sudden and sharp.

Evidence shows that speculation in gold and silver remains muted as
seen in the Commitment of Traders reports and the total gold and silver
ETF holdings – neither of which have shown huge increases or signs of
“irrational exuberance” or investors “piling in”.

Commitment of Traders (COT) data is hardly indicative of an overly
bullish sentiment extreme that would normally precede a sharp sell off.

Total Gold ETF Holdings - 1 Year (Daily)  GoldCore
Total Gold ETF Holdings - 1 Year (Daily)

Total ETF gold holdings (see above) are near the levels seen last June
and below the levels seen in September, October, November and December.

Total ETF silver holdings (see below) have risen in recent days but
are not far above the levels seen in December 2010 – some 5 months ago.

Total Silver ETF Holdings - 1 Year (Daily) GoldCore
Total Silver ETF Holdings - 1 Year (Daily)

Indeed, the ETF holdings appear to show that ETF precious metal holders
are “stickier hands” than had been expected as gold holdings look to
have consolidated above the 64 million ounce mark.

Total ETF gold holdings at 66.55 million ounces are worth nearly
$100 billion at $1500/oz ($99,825,000,000). Total silver holdings of
498.914 million ounces price at $45.50/oz are worth only some $22.7
billion, suggesting that silver remains under-owned when compared to
gold and could see a sharp increase in holdings in the coming months
and years.

GoldCore

The $22.7 billion (total silver ETF holdings) is a small number when
compared to the huge sums of money at the disposal of high net worths,
hedge funds and sovereign wealth funds. The last quarter saw Apple’s
iPhone revenue alone top $12 billion. This puts the silver holdings
figure in perspective.

One hedge fund alone, the Man Group, has assets of over $69 billion.

Some Clients Taking Profits and More Opting for Coins and Bars

Many of our clients have taken profits on certificates in recent days.
Most continue to be prudent and continue to maintain a core holding
(for portfolio diversification and financial insurance purposes) but
there are definitely concerns amongst some of a bubble.

Others have taken profits on certificates and bought gold and silver
coins and bars (in secure storage or delivered). Recently orders for
coins and bars have outweighed those for certificates and there is
definitely an increased preference for physical coins and bars and for
taking delivery.

Our ratio of sell orders to buy orders is the highest it has ever
been. Industry associates confirm that they have been seeing an
increase in selling on behalf of the public and that speculative buying
continues but is minimal.

The majority of the western public remain unaware of gold and silver
as investments and as stores of value. Most do not even know how much
an ounce of gold costs in local currency terms as precious metals
continue to be ignored by most of the non financial press or media.

This is in stark contrast to the Middle East and Asia where demand
remains robust and may even be increasing due to inflation concerns.

Ignorance regarding gold and silver in much of the western world is hardly indicative of a mania or speculative bubble.

Gold

Gold is trading at $1,508.25/oz, €1,028.10/oz and £911.05/oz.

Silver

Silver is trading at $45.44/oz, €30.97/oz and £27.44/oz.

Platinum Group Metals

Platinum is trading at $1,807.00/oz, palladium at $749/oz and rhodium at $2,250/oz.

News

(Reuters) -- Silver steadies, gold perky ahead of Fed decision
* Gold, silver may be rangebound ahead of Fed meeting
* India shows strong appetite for physical silver
* Coming up: U.S. Fed chief Bernanke briefing; 1815 GMT

Silver steadied on Wednesday, after its largest one-day slide in
over a month the previous day, while gold profited from a weaker dollar
which came under pressure ahead of a U.S. Federal Reserve interest
rate decision.

The Fed is not expected to signal any rush to scale back its
multi-billion dollar support mechanisms for the economy, so investors
are waiting to hear more on the outlook for monetary policy from
chairman Ben Bernanke when he gives the central bank's first
post-decision news conference later in the day.

With the dollar under pressure and its inverse link to gold
strengthening for the first time in a week, the bullion price was set
for a second day of gains, although a string of public holidays in the
United Kingdom restricted volumes.

Spot gold XAU= was last up 0.4 percent at $1,506.90 an ounce by 0940
GMT, about 0.8 percent below Monday's record high at $1,518.10. U.S.
futures for June delivery GCv1 were last up 0.3 percent at $1,507.30.

"It's consolidation. Gold has done a bit better than silver over the
last couple of days, but we're still in a holiday period here in
London so trading volumes are not as high as normal and I don't think
there will be a huge move (ahead of the Fed," said Mitsubishi analyst
Matthew Turner.

"I don't think there's much outlook until after the press conference," he said.

Gold could continue to draw strength from any weakness in the
dollar, particularly if the Fed maintains its accommodative policy
stance, in contrast with the European Central Bank, which has raised
rates as it attempts to curb inflation.

"The market is a bit mixed ahead of the Fed meeting, which will
influence the move of the dollar and precious metals," said Peter Fung,
head of dealing at Wing Fung Precious Metals based in Hong Kong.

Silver steadied somewhat, following its largest one-day fall in a
month the previous day. The price is on track for a 21 percent gain
this month and a 47-percent rise this year, making it the top performing
precious metal.

Dealers in Asia said strong physical demand was offering some
support to silver, although holdings of silver in the world's largest
exchange-traded funds staged their largest one-day outflow in nearly two
weeks by April 26. [GOL/ETF]

Spot silver XAG= was last flat at $45.48 an ounce, having recovered
from a 3-percent drop on Tuesday, its largest one-day slide in six
weeks.

U.S. silver SIcv1 was last up 1 percent at $45.52. Implied
volatility in silver options has been at its highest this week since
November last year as the spot price has swung from lows around $43 to
highs above $49 in the space of a week.

"The recent sharp increase in volatility is an indication of the
increasing nervousness of market players and could be a sign that the
rally in the silver price is approaching an end," said Commerzbank in a
note.

In fundamental news for silver, MMTC, India's largest bullion
importer, plans to double its silver purchases this fiscal year to
1,500 tonnes, to catch up with exploding investment interest.

Platinum XPT= was last up 0.4 percent at $1,804.49 an ounce, while palladium XPD= was flat at $750.00.

(Yonhap) -- S. Korean depositors look to foreign currency, gold
An increasing number of South Korean bank depositors are putting their
money into foreign-currency denominated deposits or gold-buying
deposits this month, data showed Monday, pointing to a growing appetite
for safe assets.

Four local banks including top lender Kookmin Bank drew US$12.6
billion in foreign-currency deposits as of Thursday, up $149 million
from the end of March, according to industry data. The deposits
rebounded in February after falling for the fourth consecutive month in
January.

The rise came as customers try to put their money into such deposits at a time when the value of the dollar remains weak.

The South Korean currency, which hit a 32-month high to the dollar
last week, has risen about 5 percent per the greenback since the start
of this year. The won is widely expected to be under upward pressure
against the dollar, aided by robust exports and sustained inflows of
foreign capital.

As the dollar has slid against major currencies amid the U.S.
Federal Reserve's soft monetary policy, gold has extended its rallies,
sending the price of the precious metal above $1,500 per ounce.

The risks of global inflation are raising expectations that the
price of gold might rise as a tool of hedging inflation risks, market
experts say.

Demand for gold-buying deposits in South Korea has risen, reflecting
the popularity of gold as a form of investment, industry watchers
said.

Such deposits came to 269.1 billion won (US$248.9 million) as of
Thursday, up 13.6 billion won from the end of the previous month,
according to Shinhan Bank. The deposits rose by 68.7 billion won from
the end of last year.

If people put their money into such gold-buying deposits, they can
invest in the equivalent amount of gold in accordance with changes in
gold prices.

(Reuters Life) -- South Korean infants hit by gold price surge
Surging gold prices have forced South Koreans to cut down on
traditional rings given to mark the first birthday of the children of
friends and relatives, making jewellers to come up with a lighter and
cheaper alternative to boost sales.

A gold ring is a traditional present to wish a baby good luck and
fortune, but a rise in gold prices to a record $1,508 an ounce on
Thursday has priced even the most devoted out. The rings are sized to
the baby's finger and its name may be engraved inside.

"On average, monthly sales of dol (first birthday) rings is only
one-tenth compared to last year," said Yoo Dong-soo, chairman of the
Korea Precious Metals Association.

A new one-gram ring, much lighter than the customary baby gift
weighing an eighth of an ounce or 3.75 grams, would help lift sales and
preserve the long-standing tradition, he added.

The first birthday is a huge ceremonial occasion in Korean tradition
that includes a birthday party. During the party, a baby, sometimes
wearing gold rings, selects an item from among things such as thread, a
pencil or money to predict their future, while families and guests
watch.

"The one-gram ring sounds just doable for both party hosts and
guests, we don't have to feel it's a burden," said Park Su-yeon, a
34-year-old mother who's planning her baby's first birthday party in
May.

But sentiment only goes so far. Some parents have actually sold the
rings engraved with their infant's name to take advantage of rising
gold prices.

(Bloomberg) -- Silver May ‘Pull Back’ in Short Term, Standard Chartered Says
Silver may drop in the short term after the metal’s ratio to
gold was “overextended” and prices touched a record in London, Standard
Chartered Plc said.

“We look for a pullback in prices in the short term amid continued
volatility,” analysts led by London-based Dan Smith said in a report
today.

(Financial Times) -- Does every pause have a silver lining?
Count references to the Hunt brothers in leading newspapers
and the results for 2011 look not unlike the stratospheric rise of
silver – the market they infamously tried to control in 1980.

But since Monday’s $49.70 an ounce peak – close to the record just
above $50 reached during the Hunt brothers’ episode – the metal is off
more than 8 per cent.

Is this market “sticker shock” – the jittery trading that surrounds
big round numbers – that can be overcome? Or is this the end of a
frothy, speculative rally?

There has certainly been speculation in the form of market-savvy
momentum-chasing hedge funds and the sort of retail investor interest
often seen during bubbles.

But there is also genuine end-user interest: Indian consumers,
priced out by the rally in gold, are increasingly turning to silver.

US consumers too have been doing their bit. Sales of silver coins
have rocketed since the financial crisis. Some of this is linked to
fear of the damage to the dollar from the Federal Reserve’s ultra-loose
monetary policy.

Silver’s rally needs to be put into perspective. At almost 150 per
cent over seven months, it is stunning, but far short of the
spectacular 400 per cent in five months managed during the Hunt
brothers episode.

Put against gold, silver does look distinctly racy. The ratio of
gold to silver prices is at its lowest since 1980, and has plunged from
46 in January this year to 33.

There are reasons enough to think silver’s rally could fade. Fed
“fears” should ease if, as expected, it confirms today that it will end
its quantitative easing in June, even if no rate rises are yet in
sight.

There is, however, no logical reason for $50 an ounce to be anything more than a psychological issue for investors.

But it would do no harm for investors to at least pause to take stock before even considering another push higher.

(Bloomberg) -- Hong Kong Mercantile Bourse to Start Trade With Gold May 18
The Hong Kong Mercantile Exchange, backed by the world’s
largest lender, will start trading dollar- denominated gold futures on
May 18, tapping demand for the metal which has rallied for 10
consecutive years.

The exchange received permission from the city’s Securities and
Futures Commission, it said today in an e-mailed statement. The futures
will be the bourse’s first product, and there are plans for industrial
and other precious metals, energy, agriculture and commodity indices,
it said. Gold futures are currently traded on the Comex division of the
New York Mercantile Exchange.

Immediate-delivery gold soared almost 30 percent last year and this
week reached a record $1,518.32 an ounce, as investors sought to
protect their wealth from further currency debasement and accelerating
inflation. Chinese demand may advance 15 percent this year as investors
seek a hedge against inflationary pressure, according to the China
Gold Association.

“Our new platform will offer Asia a bigger say in setting global
commodity prices,” Barry Cheung, chairman of the exchange, said in the
statement. “Market participants in the region have had to rely on
Western exchanges for price discovery,” he said.

The new Hong Kong gold futures will be 1 kilogram per contract, with
physical delivery in Hong Kong. Trading hours will be between 8 a.m.
and 11 p.m. local time.

Trade on the Hong Kong bourse will start with at least 16 members
including Morgan Stanley and MF Global U.K. Ltd., the exchange said.
Transactions will be cleared through London-based LCH.Clearnet Ltd.,
the company said.

LCH.Clearnet is Europe’s largest clearing house, and has members
including the London Metal Exchange, the world’s largest marketplace
for copper and aluminum.

The Industrial & Commercial Bank of China, the world’s largest
lender by market value, bought a 10 percent stake in the Hong Kong
Mercantile Exchange in December to become a founding shareholder.