Gold and Silver Prices Could Come Down in Short Term - VM Group

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"Silver is singing to gold that old refrain 'anything you can do, I can do better'. . ."

In its latest commodities report the VM Group is a little cautious on the immediate outlook for gold and silver, but seems to suggest that any short-term downside is likely to be limited.

For gold, the analysts feel that the metal has been helped by a plunging U.S. currency, mining company buybacks and renewed investor demand. But on past performance, they feel that a pullback may develop as investors take profits; however this could be relatively small, given that they point out that gold's gains have not seemed bubble-like and scrap supply is limited.

Indeed the longer gold actually stays above the psychological $1,000 an ounce level, the lower the chances of such a pullback developing and, at the moment, there does seem to be a degree of consolidation above that level.

But, the U.S. dollar is still about 10% up on the nadir of March and April 2008 and the analysts suggest that given the perceived turnaround in the U.S. economy there is a chance that the Fed will start raising interest rates again in the 1Q10 and thus give the dollar a little more strength, which could be adverse for gold. If this idea on interest rate timing is correct, though, the strength or otherwise of the gold price in the meantime will obviously be key to where it will end if and when a change in interest rate policy comes into force.

But gold has, so far, held onto its plus $1,000 price levels and every time it shows any weakness taking it below the $1,000 level it has immediately been countered with a move straight back up again.

Silver, the VM Group notes, has made a remarkable comeback in 2009, though still remains well below its $20-plus highs of early 2008. Silver bulls will probably take this as a sign further gains are to come. They might be right, the analysts conclude, but if gold does ease off, then silver will follow rapidly.

Silver is singing to gold that old refrain 'anything you can do, I can do better' the analysts suggest.

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