Silver basks in gold's glory Platinum could also get investment boost from U.S. ETF

Lewa Pardomuan

SINGAPORE — Reuters Last updated on Wednesday, Oct. 07, 2009 07:49AM EDT

With gold (GC-FT1,043.503.800.37%) at last piercing a new high, investors may next turn their attention to silver (SI-FT17.400.100.61%) , which now looks overdue for a rally even as it and other metals remain constrained by a halting global industrial recovery.

Often dubbed bullion's bridesmaid, silver is now trading at near its lowest ratio to gold in a year, slipping to around the equivalent of 59 units per ounce of gold, just above September's low and down more than a quarter from the peak in late 2008.

Signs are emerging of investors seeking an alternative to gold – which hit a lifetime high of $1,048.20 (U.S.) an ounce on Wednesday, surpassing the previous record in March 2008 – as a hedge against inflation and a falling dollar.

India's HDFC Bank, a large seller of gold in the world's top consumer of the metal, is looking at offering silver bars for sale in some cities because of interest from investors, a bank executive said on Wednesday.

“If it does move higher, you'd expect silver to outperform. The last time gold hit its high, silver was trading at $20. It's got a lot of catching up to do,” said Mark Hewlett, a commodity analyst at Cornhill Capital in London.

Silver was little changed at $17.44 on Wednesday, moving closer to a 13-month peak of $17.63 in the middle of September but nearly 19 per cent below its record high of $21.24 from March 17, 2008, the same time gold last peaked.

Unlike gold, investment into the world's largest silver-backed exchange-traded fund, the iShares Silver Trust (SLV-N17.080.704.27%) , has flatlined for the past three months, while gold inflows have boosted ETF holdings to near record highs. Silver holdings were unchanged at 8,594.22 tonnes.

But like gold, silver has also witnessed a surge in speculative long investment on the Comex futures exchange.

Physical trading was muted in Hong Kong, with silver bars offered at a discount of 10 to 20 U.S. cents to the spot London prices, barely changed from last week.

“Physical demand for gold will definitely slow down because of the high prices. Platinum (PL-FT1,335.009.700.73%) is still expensive, so probably people would like to buy silver because it's cheaper,” said a physical dealer in Hong Kong.

“But I still have doubts because most investors see silver as an industrial metal,” he added.

Industrial applications accounted for half of global demand for silver last year, followed by jewellery and photography, while implied net investment demand made up a mere 5.6 per cent, according to the Silver Institute.

Platinum, which is also used in jewellery, has been hit hardest by falling demand from automakers, as the industry suffered heavly during the economic meltdown. Autocatalysts accounted for around half of global consumption last year.

Platinum rose 1.33 per cent to $1,331 an ounce on Wednesday – still 42 per cent below last year's all time high – but it too may be due for a repricing.

“If the expectation is that gold rallies from here, platinum may have a U.S. ETF in the near future which will bring a lot of investment demand which could mop up the excess supply left by poor car sales,” said Mr. Hewlett of Cornhill Capital.

“This could see it out-perform silver as the silver ETF is already alive and kicking.”

While gains in other precious metals may be overdue, analysts were agreed that, ultimately, there was no substitute for gold.

“It's difficult to see to reasons to sell it, given we're seeing a continuation in the weakening of the U.S. dollar,” said Darren Heathcote, head of trading at Investec Australia.

Will The Gold Bugs Bull Run Continue?

The Associated Press and Reuters Last updated on Wednesday, Oct. 07, 2009 07:48AM EDT

Stock markets rose and gold prices hit a fresh high again Wednesday as investors continued to show faith in a global economic rebound.

European and Asian stocks gained ahead of upcoming corporate earnings report.

The optimism, which has been building, snowballed Tuesday after the Australian central bank boosted its benchmark interest rate by a quarter of a percentage point, signalling a shift after months of cutting rates and buoying hopes for a sustained rebound.

Wednesday morning, Germany's DAX was up 0.2 per cent, Britain's FTSE 100 rose 0.2 per cent and France's CAC-40 was up 0.4 per cent at 3,784.01.

Major benchmarks in Asia were about 1 per cent higher or more, and Wall Street was expected to edge up at the open. Dow industrials futures were up 24 points at 9,678.00 and Standard & Poor's 500 futures were 5.4 points higher at 1,054.00.

“The Reserve Bank of Australia's rate hike was taken as a sign of a return to normalcy rather than a break on growth,” said Mitul Kotecha, analyst at Calyon.

That notion has helped investors become more positive about the upcoming batch of earnings reports for third quarter accounts.

First out of the gates is aluminum company Alcoa Inc., due to release figures Wednesday, with financial companies Goldman Sachs, Bank of America, Wells Fargo and industrial conglomerate General Electric due next week.

Markets will also be preparing for policy decisions by the European Central Bank and Bank of England on Thursday.

Both are expected to keep their benchmark interest rates at their respective historic lows of 1 per cent and 0.5 per cent. The focus, however, will be on the policymakers' views of recovery and the possibility of increasing monetary stimulus as well as — in the wake of Australia's rate hike — when they intend to start tightening their policies.

Gold, which had hit a record Tuesday, also continued to rise, with spot bullion at a record $1,048.20 (U.S.) an ounce Wednesday.

And This:

James Regan and Ruchira Singh

SYDNEY/MUMBAI — Reuters Last updated on Wednesday, Oct. 07, 2009 07:46AM EDT

Gold consumers across Asia greeted bullion's run to a record high cautiously on Wednesday, with a few moving to cash in gains but the majority opting to wait for the rest of a rally they believe has only just begun.

In contrast to a second day of busy trade on global gold (GC-FT1,043.804.100.39%) markets, the scene at shops and jewellery merchants from Sydney to Hong Kong to Mumbai was marked by a distinct lack of occasion, suggesting that the wave of retail scrap selling that greeted gold's record run in March 2008 may not be quick to recur.

“Today's been like any other day,” said David Carr, of KJC Coins Australia in Sydney, which deals in precious metal coins and bars. “No one's coming in to sell gold because the price jumped overnight, it's more wait and see, business as usual.”

The Australian outback gold mining town of Kalgoorlie, home to a nearly Times Square-sized electronic ticker tape broadcasting up-to-the-minute bullion prices, also was quiet.

“There's nothing going on that's out of the ordinary,” said John Horner, editor of the Kalgoorlie Miner newspaper.

Profit taking – read selling – replaced gold purchases that in New York and across Europe on Tuesday had swept spot bullion more than $10 (U.S.) above its previous March 2008 peak, and carried through on Wednesday to a record $1,048.20 an ounce.

The issue of scrap supply in the gold market – generated largely from the resale of jewellery to merchants – has taken on greater importance in recent years, as the advent of physically backed Exchange Traded Funds (ETFs) attracts new investors.

The biggest such fund now holds more than 1,000 tonnes of gold, equivalent to the world's fifth-largest central bank, and analysts had said that only the flow of scrap material into the market had prevented gold from soaring much sooner, much higher.

While there was some evidence of retail sales, it wasn't overwhelming.

“It is simple, buy low and sell high – I am making a 10 per cent profit already so I am selling,” said Nguyen Duc Hung while waiting to sell five taels of gold at a shop on Hanoi's Ha Trung street. Vietnam is Asia's second-biggest gold buyer.

To date, there have been no reports of gold hoarders burying stashes in secret spots as was the case in 1980, when gold zoomed above $800 an ounce for the first time, or about double today's level when adjusted for inflation.

“Both buyers and sellers are coming to the shop today, they are more or less evenly balanced,” said Osamu Ikeda, general manager at Tanaka Kikinzoku Kogyo, Japan's top bullion retailer.

Rival Tokuriki Honten Co. Ltd. saw a similar scene.

“There are no queues outside our shops,” said general manager Fumio Yamamoto. “For the Japanese, the (yen-based) price is too high to buy, but too low to sell.”

One of the biggest reasons Asian consumers may not be rushing to sell is that gold's record high is limited to those trading in the U.S. dollar, whose steady decline since March has been the biggest factor in bullion's rise.

In the Australian dollar, gold prices are down 20 per cent since March; in the yen, they're still far from their peaks.

The next focus for the market will be India, where consumer demand typically peaks next week for the Dhanteras and Diwali festivals, and the strong rupee kept the local price of gold under the psychological level of 16,000 rupees ($342) per 10 grams.

“Buying was very strong in the last couple of weeks, but it has been affected now even though the rupee has given a good cap to local prices,” said Pinakin Vyas, assistant vice president, treasury at IndusInd Bank, a private bank in Mumbai that imports gold to sell to local traders and jewellers.

“Investors will not buy at these levels though need-based buying from jewellers will continue. People will wait for some time and then come back to the market.”

Amid speculation about the long-term prospects for the dollar, the outlook for inflation, the economic recovery and the fate of the financial system, some of the smaller players in the global gold story had a much simpler view.

“The price is high and I don't wear them,” said a 60-year-old Hong Kong housewife standing outside a downtown jewellery store, who only gave her surname of Fung, after selling a gold ring and a gold pendant purchased more than 20 years ago.

“So I sold.”