Currency Wars To Shoot Gold High And Silver To Infinity

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Silver (as explained in much detail in many of my previous articles and posts on Silver Investment) has the huge potential to rise to astonishing highs once the momentum picks up. Gold and Silver Market traders continue to monitor on-going developments regarding the potential for the so-called “Currency Wars”, which is bound have bullish impacts on the Bullion Prices. Currency Wars occurring would mean that major industrialized nations begin actively seeking to devalue their currencies, in order to stimulate their export sectors and boost economic growth.

Japan’s new administration has been “jaw-boning” its currency down and the yen has seen substantial weakness in recent months, diving about 11% since early November versus the US Dollar. Selling the yen has been mostly a one-way bet since mid-November, based on expectations that Japanese Prime Minister Shinzo Abe would push the Bank of Japan into more aggressive monetary easing to beat deflation. G-20 Finance ministers are set to meet in Moscow on February 15-16 and Japan’s currency policies will no doubt be a topic of discussion. Push back will be seen by the Group of Seven (G-7) nations as the stated policy is that currency intervention is not an acceptable policy tool, except in cases of “excessive volatility.” Full blown Currency Wars would be highly supportive for Gold but even more so for Silver Prices.

The policies in major economies of Monetary Easing and low interest rates will boost global liquidity, increase risk preferences in the markets and drive speculative funds into Silver, Base Metals, Equities of Emerging Nations like China or India as well as other risk assets rather than Gold now, though some size-able chunk will also be driven to Gold Investment. The so-called loose monetary policies and rising industrial consumption will support Silver Demand, according to Morgan Stanley, which described the metal as a “cheap Gold Proxy” in a Jan. 24 report. Prices have more than doubled since 2008 as the US Federal Reserve, which concludes a two-day policy meeting today, boosts stimulus to spur a recovery. The FOMC has already delivered an extraordinary open-ended (Limitless QE) $85bn/month promise to provide as much monetary policy stimulus as it takes to get labor markets, and therefore the economy, to accelerate convincingly. It is likely that the next several FOMC meetings will prove to be comparatively uneventful, except in the case that the QE programs are withdrawn, which again is very unlikely. The punch will thereby be only in the Fed’s statement of thoughts for the future.

The Gold and Silver Market Yesterday:
Silver for March delivery advanced for a second day, gaining as much as 1% to $31.50 an ounce on the Comex in New York. Comex Gold Prices yesterday saw some short covering and bargain hunting buying interest ahead of the FOMC policy announcement. Gold and Silver also got support from a weaker US Dollar and higher Crude Oil Prices, which hit a 5 month high. Crude Oil Prices could push above the important psychological level of $100.00 in the coming weeks, and in that case, it would likely be a bullish development for the Gold and Silver Markets as well as most other commodity markets. Open interest in Comex Gold, which is the number of open positions at the end of a business day posted one of the largest declines in the past year on Monday after Option expiry amid rollovers. CME Group reports that the number of open positions at the end of business Monday stood at 438,918 contacts, which was a decline of 19,020. February gold settled Tuesday with a gain of $7.90 to $1,660.80 an ounce. April contract, which now has the most open interest, added $7.70 to $1,662.70. The rise so far has squarely been due to large short covering, close to a major support level.

The short covering in Gold Futures has also been triggered due to uncertainty surrounding the FOMC announcement due today. Traders are probably going to have a wait-and-see approach until they see what the Fed has to say. The US consumer confidence declined by more than expected in January, while home prices declined slightly in November. The slightly downbeat US Economic data added pressure to the US Dollar index and in turn helped Gold and Silver gain. The Federal Reserve ends a two-day policy meeting on Wednesday, and few market watchers expect any near-term shift in its current, very accommodative stance. The Fed is widely expected to reaffirm its commitment to super-easy policy until unemployment falls sharply, which could ease concerns about an early end to bond buying. Gold and Silver Investors will focus more on the statement for any clues to the Fed’s thinking on if and when it might pull back from its aggressive easing stimulus. Gold and Silver Market traders will also be looking out for the first estimate of U.S. fourth-quarter GDP due later on Wednesday, a couple of days before the January jobs report. Median forecasts are for annualized growth of just 1.1%, down from 3.1% in the third quarter. Such a lackluster result would likely support the doves at the Fed, particularly as tax hikes enacted this month could hamper growth for the first quarter as well. The impact was clear in the Conference Board measure of consumer confidence out on Tuesday which showed an unexpected slide to 58.6 for January, it’s lowest in over a year. “We see a prospect for sustained asset-price reflation in coming months, the result of G3 stimulus efforts and structural reallocation flows,” said Morgan Stanley said in a research note.

“This has three implications: Reflation would lend support to higher-yielding emerging markets assets, safe-haven assets would continue to weaken, and expectations about emerging markets policy would likely shift.” The yen remained under pressure with the Bank of Japan set to pursue strong monetary easing as the Abe administration pushes for radical reflationary policies to end stubborn deflation. With theUS unemployment rate currently hovering at 7.8%, the FOMC may leave the QE measures untouched but this time around the dissent amongst members could be acute. Last time, James Bullard, a member of the Committee said that aggressive QE measures are making him a bit nervous and Esther George, another member warned of ‘risks of future financial imbalances’ and upside risks to Inflation when it comes to maintaining near-zero interest rates. Base Metals prices may witness robust growth soon as domestic demand inChina – the world’s largest consumer of metals, holds key this year. Beijing’s drive to urbanize inner China will boost infrastructure spending whileSoutheast Asia will also likely see expansion in domestic demand accelerating.

Silver Coins sales – A barometer of long term investor demand and Price direction:

Silver Investment holdings reached an all-time high this month. A mind boggling 7.4 million American Eagle Silver Coins were purchased from the U.S. Mint in January, considerably higher than the previous record from early 2011. This has been the biggest monthly total since 1986, when the Washington-based Mint began the Silver Coins sale transactions. Sales of American Eagle Silver Coins by the US Mint jumped to a record this month on increased demand for an alternative to currencies as the US central bank presses on with unprecedented stimulus. After halting Silver coin production/sales for over a week, the Mint re-opened yesterday and demand once again surged. Having almost doubled from the first week in January, there remains two more days before the book is closed on January’s sales. At 140,000 ounces, the Mint has also sold the most ounces of Gold Coins in January in almost three years, suggesting the rising “Currency Wars” are stoking people’s ongoing rotation from paper-to-physical assets as their ‘wealth’ slowing loses its value. Historically, during the last two years, sales of Gold and Silver coins have been the strongest during the month of January, accounting for 15% and 17% of total annual sales, respectively. I have always maintained that, Physical Gold and Silver coin sales are a barometer of longer-term investor demand for quality hard assets and also an accurate price direction indicator.