Gold & Silver Push Ahead

James Steel, HSBC Chief Commodities Analyst

Last weeks sell-off took the wind out of gold & silver markets. A number of investors took profits, apparently George Soros included, while the less determined investors bailed on metals.  Yet, this week metals are moving forward reclaiming a portion of the losses from the previous week.

It is due to the solid fundamentals of gold & silver. So much that HSBC’s raised this years forecast on gold from an average of $1,450 to $1,525. Investor demand now is the main driver for gold pricing, while traditionally important physical supply and demand components, such as jewelry demand and mine supply, have recently exerted little influence on day-to-day moves in the gold price, HSBC Chief Commodities Analyst James Steel said in a new report.

Another fundamental in gold is for the first time in over a decade the major central banks are net purchasers. After many years as a contributor to supply, central banks have swung to being net buyers. We believe this is an important development that will support prices going forward. The signatories of the third Central Bank Gold Agreement sold little gold in the compact’s first year, through end-September 2010, Steel added. This will also shorten the supply for other investors providing further pressure upwards.

Silver finally, has the ongoing pressure that its industrial use, including the production of mint coins, out-strips its production. This has contributed to HSBC updating the previous price average of $26 an ounce to $34 an ounce for 2011.  Increases in mine and scrap supplies will be offset by robust industrial demand, we believe. More than half of the annual silver supply is regularly consumed by industrial sectors, Steel commented in the report.

All of these indicators make the case for acquiring gold & silver during its current retraction. As we have said before the best way to consider your investment in metals is to remember the cost averaging per ounce. The experts are calling for considerable increases beyond their initial predictions in January of this year. Now is the time to increase your position in metals bringing your Tangible Asset Portfolio up to a conservative 10% to aggressive 20% of your net worth.


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