Long-Term Trends Key for Gold and Silver Investors


". . .undue importance is often imparted to intraday price movements. . ."

In daily newswire services' coverage of the gold and silver price undue importance is often imparted to intraday price movements, yet these generally have little or no real significance in the overall scheme of things.

Follow the overall trends as expressed by the markets—not only for the metals but also for other significant market-moving elements—of which the strength of the dollar is the most significant. With most metals prices expressed in U.S. dollars an increase in metal price may simply be a reflection of a fall in the dollar, which is then compounded by additional supply and demand factors.

For gold and silver in particular, where industrial demand, particularly for the former, is perhaps less important than investor demand in setting the price trend, one need only look at the charts to see the trend has been, and remains, very much upwards. It is also noticeably apparent that silver is much more volatile than gold, but the overall trends are remarkably similar with gold setting the basic silver price scenario.

What has made a difference to the prices of both metals has been the strength of investment demand, in both the metals and as shown in the strength of ETFs. This does add another element of price danger in the form of an overhang, which could feed its way back into the market if investors feel it's time to sell.

But the big reason behind the investment demand has been the 'safe haven' element and, while economic turmoil persists, serious selling of ETFs and bullion is unlikely. With central banks seemingly less inclined to sell their gold, the market has been able to absorb the scrap generated by the higher prices and the recession-driven decline in jewelry sales. But the resulting supply/demand balance is much more difficult to predict going ahead than in the past.

Overall the price trend remains upwards for both gold and silver. Does the recent volatility in the price of both metals suggest the start of a change in pattern, or just a blip in overall price growth? We would cautiously suggest the latter, but that remains to be seen.

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