Commodities | Feb 02 2012
By Jonathan Barratt
Gold and Silver continued to shine during the holiday period and it has been remarkable to see the gains, Gold up close to 15% and Silver up close to 24%. Has the market just gone too far too fast, are the real reasons for the move higher, in particularly Silver justified?
We can echo the normal reasons for the higher price action; such us USD weakness, and geopolitical concerns, however we are feeling that the Silver price is dragging the Gold prices higher. By comparison last months price action has seen Silver out pace Gold by 9% and if the demand picture remains as solid as expected then we can adopt a buy on dip scenario for the metal.
The reasons behind the move are simple, we have just experienced record industrial demand for the metal of 15,415 metric tones and with ETF investors looking to purchase close to 2000 tons the previous glut has been reduced by close to 40%. One interesting aspect to the glut is the renewed industrial demand for the metal attributable to the uptake of solar panels and plasma TVs. Demand for panels increased by 70% year on year and it is extremely likely that this trend will continue. Each solar panel will use 0.12 grams of Silver and as much as 40 grams goes into a 32 inch plasma television. All we need to do next is the maths. This will provide us a solid base from which to work off and as we are about 50% off the highs from April 2011 we have scope to move.
Silver remains a buy on dip scenario.
Chart point:
Although we are positive both the Gold and Silver markets, more so the Silver market, we can see that a correction is imminent. We have been long Silver for the over the holidays and recently cashed in on the position. At the moment if you are bullish the metal like us, stand aside the market and wait for better opportunities to buy. Momentum indicators for both Gold and Silver look toppy and as such we can suggest we are entering into a period of consolidation. Treat any correction in Silver as a bear move in an overall bull market. Dips back to US 30.00 look promising.
On Gold we also expect some consolidation with momentum just about to turn. If we get a daily close below US1700 then this should signal the move lower for us.
Produced by Jonathan Barratt direct from the trading desks of Commodity Broking Services, Barratt's Bulletin provides expert analysis of commodity markets, global indices and foreign exchange movements. Click here to take a no obligation 21-day trial to Barratt's or to learn more visit www.barrattsbulletin.com. Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).
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