Week ending 24th May 2013

The case for Silver => Gold-Silver ratio highest level since September 2010.

Amid the recent volatility for precious metals, Silver has been the biggest loser as monies have been rotated out of precious metals into equities and the US dollar amid an apparent improving outlook for the US economy.

An ounce of Gold currently buys around 63 ounces of Silver, twice as much as it was in April 2011, when Silver was trading considerably higher.

Silver looks to be gaining strong support in the physical market and may well represent good buying opportunities in the weeks ahead.

US Federal Reserve Chairman Bernanke confuses some with his comments!

On Thursday Ben Barnanke of the Fed Reserve gave conflicting messages that they would continue with the bond buying program of US85 Billion per month and could curb this if economic data continued to improve. This initially drove Gold lower but as the reality of continued money printing set in, Gold recovered.

One perspective was reported by Adrian Day at Adrian Day Asset Management whose firm manages about US$200 Million in commodities with about a third of this in Gold where he said; "A whole load of short-covering came in this morning as people got unnerved looking at the way some precious charts had tanked. I'm a buyer at these levels."

We also note with interest that reports from George Soros a few weeks back were negative to Gold and they had sold off their Gold holdings by more than 12%. Then a few days later Soros announces purchases of US$25 Million+ in Junior Gold Mining companies. Such an investment is surely based on a view that their is upside in the price of Gold.

The Global Macro perspective:

Hedge Funds and other major Speculators have continued to be sellers while the Central Banks have been buyers. When we factor in the shortage of physical bullion that emerged a few weeks ago it is unlikely that the market-making bullion banks would relent on their pursuit for net long positions in Gold.

Japan's equities makets (Nikkei) plunged on Thursday wiping out 7% or US$340 Billion of value.

While we think there may be continued volatility in the weeks ahead, the case for physical bullion is still strong for the medium to long term.

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