Commodities Corner
5 year chart: Gold - black; Silver - red; EUR/USD - blue; S&P500 - green
We can see from the chart above that silver has re-traced entirely the outperformance relative to gold over the last 15 months. Adding to the (currently minority — which is encouraging as a contrarian) bear argument on gold, just recently, the World Gold Council (WGC) released data showing that gold demand fell to its lowest level in more than two years in the second quarter of this year. A large drop in demand from China and India led to this result. The Chinese economy has been deteriorating fast and demand for precious metals as a commodity to be used in industrial production will obviously suffer.
Many analysts and hedge funds have been bearish about silver prospects due to growth concerns around the world, but a recent report disclosed that individual investors have been buying the metal following the large retracement from $49/oz — an interesting situation between the so called “smart money” and “dumb money”. We have a sneaking suspicion that, in fact, the “dumb money” could, on this occasion, prevail. We think that there is an interesting ‘pairs’ play between silver and gold at this point and we would suggest a long silver:short gold position in equal measures.
September 2012 | www.financial-spread-betting.com | 91