Gold, silver consolidating after monster gains last week - Wealth Managers

"The market is ripe for big gains in metals" as September tapering fears take hold

After rising 1% to a two-month high Friday near $1,380 and posting its biggest weekly gain in five weeks, gold wasconsolidating early Monday near $1,370. Likewise was silver, which even outperformed gold last week by advancing 1.5% for an eighth consecutive daily gain and about 14% for the week.

"Precious metals were well supported this week as investors bailed out of equities and [Treasuries] on higher prospects of a September stimulus taper by the [Federal Reserve]," saidMike Meyer of EverBank World Markets on Friday. "The large drop earlier in the year for both gold and silver are now presenting buying opportunities for investors sitting on cash."

After a weaker consumer confidence report for August and lower-than-expected residential construction data, "uncertainty is re-entering the economy and making money managers think," said Carlos Perez-Santalla at futures brokerage Marex Spectron.
Physical gold demand skyrockets
Last week's World Gold Council Gold Demand Trends report, which covers the period April-June 2013, also confirmed how much physical gold demand has supported the market even as ETF investments waned:

"Globally, jewellery demand was up 37% in Q2 2013 to 576 tonnes (t) from 421t in the same quarter last year, reaching its highest level since Q3 2008. In China, demand was up 54% compared to a year ago; while in India demand increased by 51%. There were also significant increases in demand for gold jewellery in other parts of the world: the Middle East region was up by 33%, and in Turkey demand grew by 38%.

"Bar and coin investment grew by 78% globally compared to the same quarter last year, topping 500t in a quarter for the first time.  In China, demand for gold bars and coins surged 157% compared with the same quarter last year, while in India it jumped 116% to a record 122t. Taking jewellery demand and bar and coin investment together, global consumer demand totalled 1,083t in the quarter, 53% higher than a year ago.

"For the tenth consecutive quarter, central banks were net buyers of gold, purchasing 71t, which reinforces the trend that began in Q1 2011."  

WGC managing director Marcus Grubb added: "The second quarter continued the trend that we saw in the first, of a rebalancing in the market, as gold coming onto the market from ETF sales met with a wave of demand for bars and coins, as well as jewellery. This surge in bar and coin investment was a common theme in key markets around the world, and has been particularly prominent in the world's biggest gold markets, India and China.  This shift from West to East has been further reinforced by recent data from the LBMAshowing that in June the volume of gold transferred between accounts held by bullion clearers hit a second consecutive 12-year high, buoyed by strong Asian physical demand."
Gold was "ridiculously oversold"
A parade of gold bulls emerged last week to say the metal's near-term future looks bright after the recent break above $1,350. "Is it overdone on the upside?" Tocqueville Gold Fund manager John Hathaway said Friday. "I think basically if you take a longer view, which is what I always do, the rationale for being in gold is the prospect of monetary debasement," he said. "It was ridiculously oversold."

Hathaway also noted the disconnect between lower gold prices in New York and London and increased demand in Asia, where investors were buying the precious metal "buying hand over fist."
"Tapering is just like kissing your sister"
The prospect that the Fed will begin reducing its $85 billion-per-month asset-purchasing program wouldn't likely do much to affect gold prices. "Tapering is just like kissing your sister," he said. "It just seems to me very unlikely that an action can take place without a substantial collateral damage in the financial markets, and I think that's the real reason to own gold."

"Typically, when everyone hates an investment, I am completing due diligence and am buying that investment,"said Malcolm Gissen, co-manager of the Encompass Fund. "Right now, it is challenging for me to find an investor who is bullish on any major metal." He added: "The market is ripe for big gains in metals."
"This really feels like a bottom"
"Gold has given us a few head fakes earlier this year, with apparent bottoms that just turned into another step down on the stairs," said Brien Lundin, editor of Gold Newsletter. "But this really feels like a bottom for a number of reasons. … A metals investor needs to seriously consider buying at these levels."

"The global gold market is drum tight," with demand from China at record levels, registered supplies in Comexwarehouses at record lows and the "GOFO" (gold forward offered) rate negative for only the fourth time over the past 14 years, he said. "The very strong implication is that gold supplies are very tight and anyone trying to get supplies in any size has to pay up," said Lundin. "It's painfully apparent that the gold market is being squeezed."
3 reasons gold has more upside
Meanwhile, MacNeil Curry, the head of global technical strategy at Bank of America Merrill Lynch, also predicted"further upside" in gold. In fact, he's "looking for a move up to the $1,410, potentially $1,450 area."

He presented the three reasons behind that prediction:1) Downtrend was overstretched; 2) precious metals are confirming the gold bounce; and 3) unwinding of gold positions has subsided.
Rick Rule of Sprott USA also weighed in: "We've seen a move from weak hands, that is, leveraged long futures buyers, to strong hands, basically individuals unleveraged buying for cash in the physicals market, and I think the physicals market has begun to overcome the futures market."
"It's silver's time to shine"
Despite gold's big move, the real story last week heading into this week is silver. "The fact that silver has been able to outperform gold could be a good sign," MarketWatch noted.

"Silver outperforming gold is generally considered to be a bullish sign," said Lundin. "Silver is more volatile than gold and is generally very closely correlated to gold so if it is moving more aggressively when both are heading higher, then it's a signal that a classic bull move is in place." 

"It is silver's time to shine after the precious metal climbed for seven straight sessions to notch gains not seen in nearly five years, and analysts say its winning streak is far from over," CNBC also reported.

"It's something that you can't really ignore at the moment," said Stan Shamu, market strategist at trading firm IG. "There is plenty of talk about silver being in a bull market now, after the recent gains, it does look like it is in really good stead."

Shamu forecasts that silver will reach $24-25 an ounce in the short term, and highs of $28 by the end of the year. "It looks like the trend in the short term for gold and silver is upwards they've broken through some key resistance levels," he said.
Silver's "fall below $20 was overdone"
Andrew Su, CEO of Compass Global Markets, said he expects silver to hit $25 over the next month on the back of a rally in gold and to surge to around $28 at some point in October, once Fed tapering has begun. "The fall below $20 was overdone and we are seeing the early stages of a sharp and strong reversal," he said.

Su said the only scenario that could derail silver's rally, in his view, would be if the U.S. economy posted spectacular growth figures and consequently faster than expected tapering.

"This would see gold once again come under pressure and would translate to price pressure of silver," he said, adding that this was not his base case. 

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