Silver

Gold Stock Analyst (06/01/2009)
"Poor man's gold acted more like a gold stock than a precious metal in the past year.

Into July of 2008, gold, silver and the XAU all closely tracked each other. But, after FDIC takeover of IndyMac bank on 7/11, the relationship broke down. Gold suffered least, but silver and the XAU, as derivatives of the yellow metal, collapsed together. As gold stocks and the XAU got their 'mojo' back in late-08, so has silver. Both narrowed their spread with gold. Silver has risen to improve its Au/Ag ratio from over 80 to low 60s.

CPM had the courage in mid-08 to forecast silver ranging from $17 to $21/oz for the 2008 to 2010 period. They got the top end right, but the market collapse in 3Q08 saw the poor man's gold fall to a low of $8.80/oz on Sept 24 from its $20.92 high on March 17, 2008 (exactly when gold was hitting its $1,011 high).

GSA fears the coming supply increases to the silver market could weigh on price. Among the big mines, Goldcorp's Penasquito is slowing ramping to deliver 30 mil oz in 2011 and Barrick has just OK'd building Pasqua-Lama that will add 35 mil to supply in 2012. Add to this the many smaller mines planned and there's 140 mil oz/yr in new supply coming, a rate faster than silver's expanding industrial uses can absorb, particularly in light of the declining photographic use.

Good news for silver is the fall in zinc and lead prices brings mine closures and delay startups of new base metal mines, as ~70% of silver comes as a base metal by-product. And, the ETFs continue to buy due to investor demand.

GSA sees gold moving higher and since silver follows the yellow metal, it too should see gains in the months ahead."

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