A Tale of Two Metals

I’m getting more-bullish on gold. Yet, I can’t say the same for silver.

And that’s odd, because silver can perform like “gold on steroids.” It often takes the moves that gold makes — to the upside and the downside — and amplifies them.

But not now. Now — after scaring the bejeezus out of us — gold is improving, while silver is still stuck in a ditch …

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A shocking turnaround in the gold markets …

The agency that monitors trading in the commodities markets recently said hedge funds and money managers are becoming more-bullish on gold.

But before the "big guys" started reboarding the bandwagon, individual investors were busy scooping up gold American Eagle coins with both hands. Buying has been so big that the U.S. Mint has halted sales until it can restock its inventories!

Coins are a great way to get long gold. But Sean Brodrick has a way that can reward you faster and doesn’t involve options, futures, leverage or even storage of the physical metal.

Watch his newest gold presentation and get all the facts before you decide how, when and more importantly what to buy!

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Take a look at this chart of the gold/silver ratio, which is the price of gold divided by the price of silver.

(Updated chart)

You can see gold is getting more-expensive compared to silver. And we know it can go higher, because it has been higher before.

Some things that may be weighing on the price of silver include …

1. No Frenzy on the Consumer Level. We’ve recently seen mom-and-pop investors scooping up gold by the fistful, via American Gold Eagle sales.

Not so when it comes to silver.

Sure, sales of Silver Eagles are higher. Here’s a chart I made using U.S. Mint data.

At 3.23 million ounces sold for April, the coins are poised to surpass sales from March (3.35 million) and from February (3.36 million). But daily sales levels have been considerably slower this month than in January, when the all-time monthly record was set at just under 7.5 million.

Compare that to what we’re seeing in gold …

Now that’s a spike.

The most recent data on the U.S. Mint’s website shows 196,500 ounces have been sold so far in April, nearly TEN TIMES the 20,000 sold in the same month a year ago.

What’s more, the U.S. Mint recently suspended sales of its one-tenth-ounce American Eagle gold bullion coins, as surging demand overwhelmed supply.

And it’s not just consumers who are scaling back on silver purchases.

2. Less industrial demand. The good news for silver last year was that silver investment demand rose 21%, to 160 million ounces from 132 million ounces the previous year. The bad news is that demand fell for fabrication, industrial applications, photography, jewelry, and coins and medals.

As a result, according to a recent report from the Silver Institute, “Total silver fabrication demand in 2012 dipped to 846.8 million ounces, reflecting losses in key areas.”

This year, as we can see, Silver Eagle sales ARE up, even if they’re not spiking like gold. But it’s obvious that industrial users are becoming more-efficient in their use of silver.

Last year, the solar industry — which uses nearly 5% of global silver supplies — was able to cut its silver demand by a third through new designs that increased efficiency.

That could weigh on demand longer-term, creating …

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Was Ron Paul Right?

In a recent Slate article, Ron Paul said he’s not worried about the pullback in gold:

"That’s just a market phenomenon. That’s not unusual … but obviously the weak holders had to get out, and the strong holders are back and buying."

He’s right; this isn’t the first time gold has pulled back this hard in a bull market. And it won’t be the last.

In fact, we believe the best gold buying opportunity of the last 30 years is right around the corner. Don’t be left out — click here now for all the details about the best gold stocks of 2013!

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3. More Silver Supply. Meanwhile, silver production is growing, according to the Silver Institute. Global silver-mine production grew last year by 4% to 787 million ounces, primarily due to by-product output from the lead/zinc sector.

Primary silver-mine supply grew by 1% to account for 28% of global silver-mine output. Primary silver-mine cash costs rose to $8.88 an ounce — reflecting higher prices for labor, electricity and maintenance charges.

Plus, supply from scrap, government sales and producer hedging went down, so TOTAL silver supply only nudged higher, adding 9 million ounces to 1.048 billion ounces.

But compare that to total gold supply, which dropped 1.3% in 2012, according to the World Gold Council.

Again, lack of supply gives gold the edge over silver.

This year, silver-mine production is expected to climb again — to 800 million ounces. But we’ll see if falling silver prices impact that.

In the Short Term, Look to Gold

Look, I’m a big fan of silver. Heck, I own enough of it. And I’m looking forward to buying more … I just think there’s no rush.

It looks like silver has more work to do before it heads higher again. Gold, on the other hand, might not loiter too long at these prices. Gold is outperforming silver, and I expect that to continue in the short term.

Recently, I’ve recommended gold miners to my Junior Resource Millionaire subscribers … and they’ve done very well. I am NOT recommending silver miners at this time. That may change, but I’m finding the real bargains in gold.

And what bargains!

Heck, there are producing gold miners that are growing their production AND reserves, trading at book value — or LESS than book value. Unless the mine is on fire, that shouldn’t last for too long.

And while I look forward to buying silver miners again, for now, I am avoiding now silver explorers and developers. They’re cheap, but if silver doesn’t find its legs soon, they could get a heck of a lot cheaper.

If you’re doing this on your own, do your own due diligence, and please be careful. Heck, gold could take another leg down. I would view that as a buying opportunity, but everyone has their own tolerance for pain and risk, and this kind of market can make you acutely aware of just how much pain you can take.

Just remember, the darkest days contain the most opportunity.

Good luck, and good trades.

Sean

P.S. My Junior Resource Millionaire subscribers are playing this market like a fiddle, with a bunch of open gains in precious metals, energy and other resource plays. Plus, I’m putting the finishing touches on my next trade, which I’m planning to release as soon as tomorrow. Don’t miss out — click here NOW to make sure you’re on board to receive it!

Your thoughts on “A Tale of Two Metals”

  1. Are you suggesting a gold silver price bifurcation?!
    When has there been such a diversion between gold and silver prices in history, and for how long if there was any?
    I think you will find that silver will follow gold generally up or down. Except that it’s going down for a visit to the basement first.

    Silver has become the metal of choice for lower echelons of society who are mostly uneducated and inexperienced in trading or investing; there is a big silver pimp push happening on Youtube with angry Red neck derelicts with monster trucks wall to wall standing with frothy mouths waiting to become “millionaires” “any day now when silver goes to the moon” from their real or imaginary “stacks”! It’s bizarre.
    I’d run away from a market like that.
    Can you say CRASH?

Comments are closed.

Sean travels far and wide to seek out small-cap values in the natural resource sector. His journey started in New England. As a youth he worked on Mt. Washington, on the cog railroad that runs to the summit.