Trading overnight on the Shanghai Gold Exchange (SGE) served to give the gold price a boost overnight last night. The SGE’s am benchmark fix came in at the equivalent of US$1329.05 an ounce, around $10 higher than it had been trading on Western markets the previous day, and the pm SGE benchmark price came in higher at $1.335.27 on http://www.kitco.com’s calculations – the site has a nice interactive tabulation of the SGE benchmark prices in various combinations of yuan, U.S. dollars, ounces and grams.
Whether the SGE uptick will start to show up in terms of a pick-up in Asian demand – notably in China where it appears to have been lacklustre so far this year – remains to be seen. But this could already be happening given net imports of gold into mainland China from Hong Kong (which currently accounts for around 40-50% of such imports), rose sharply in May to the highest level in five months at 115 tonnes. If Asian demand does pick up – we will be watching mainland China gold import levels with perhaps added interest in the months ahead to see if there is a continuing improvement – and if gold ETF inflows continue at recent levels, there could well be even more of a squeeze in physical gold availability given inventories of available. non-attributable, metal in London and New York appear to be getting particularly tight.
The real precious metals beneficiary of yesterday’s gold move – indeed of gold’s overall performance over the past few weeks – has been silver, which for the first time since September 2014 has breached the $19 an ounce level. Indeed its rise of around 6% over the past 10 days has been pretty spectacular. This is also showing up strongly in the Gold:Silver Ratio (GSR) – effectively calculating the amount of silver it would take to ‘buy a similar weight in gold – which has come down to below 70 from a high of over 83 only around three short months ago. silver had seemed to be relatively slow to move, but now it appears to have some momentum behind it.
As a result of silver’s increase, silver stocks – even before the latest big surge in price – had been probably the best performing stock market subsector year to date – See: Silver Stocks Best Investment YTD. Can They Continue to perform?. But since I wrote that article only a few days ago they have, not surprisingly, continued to move sharply upwards alongside the boost in the silver price. From the UK investor’s point of view, most of these major silver stocks are quoted in Toronto (TSX) and the USA (NYSE or NASDAQ) – the only major primary silver producers with UK quotes are Fresnillo (FRES) and Hochschild (HOC). FRES is up 142% year to date and HOC 178%. Another more diversified approach would be the Way Charteris Gold and Precious Metals Fund where silver stocks comprise a large part of its major investments. After a pretty torrid performance over the past few years, this year to date it is up around 154% from the beginning of January. These are impressive performances, but as usual with silver, while the upside potential is really positive, the downside risks are similarly large. Silver tends to outperform gold when the latter is rising, but can substantially underperform on the downside.
Silver too, as a very small market sector in monetary investment terms, is also seen as being particularly prone to potential manipulation on the futures markets by a number of silver analysts and by virtually the whole community of out and out silver bulls. They will point to a number of occasions, and particularly April 2011, when silver was on a roll and reached just short of $50 an ounce, where huge seemingly anomalous sales on the futures markets saw it crash – even when gold at the time was to continue on an upwards path for another 4 months.
Both silver and gold have benefited quite strongly from the shock UK Brexit referendum outcome which has had some strange effects on markets in general. Gold, and silver, have benefited, while the pound sterling has plunged, but the UK’s well-followed FTSE 100 Index, after a stutter, recovered all its lost ground, and more. It is currently up 5% on the past month at a new high for the year to date. Few would have predicted that kind of outcome from a vote for the UK to leave the safety net of the EU.
But as cautioned, silver is a volatile metal to trade, and silver stocks perhaps even more so. If gold continues to show some strength, there’s a good chance silver’s momentum could carry it yet higher still with the GSR continuing to come down. If gold were to reach $1,400 or higher by the year end – as many analysts are now suggesting – silver and silver stocks could well be somewhere to put perhaps a limited section of your investment portfolio, but only a true gambler would risk all!