BullionVault Weekly Update
Monday, 9 January 2017
In the markets this morning...
- Gold + silver rise ahead of rising Dollar as stockmarkets stall...
- Beijing didn't buy gold on December's slump, 2nd month running...
- Hatton Garden update: 'I just remembered something important...'
- How physical markets work: Crude oil edition...
- As if Turkey doesn't face enough trouble already...
For up-to-the-minute live spot gold and silver prices use the BullionVault chart
The Horror Curve's Silver Lining
from Adrian Ash
Head of Research, BullionVault
WARNING! Mildly bullish outlook ahead!
Because if gold is for insurance, then silver is for inflation.
And 2017 is already shaping up to deliver a bucketful of price-rise headlines.
You see, even before Donald Trump gets his little hands on the big levers of US debt and spending, global growth is accelerating away from analyst forecasts. Or so everyone says.
Rising commodity prices have already pushed Chinese factory-gate inflation up to a 5-year high...with December's numbers due out tomorrow.
US factory managers are seeing prices rising fastest since 2011. And with jobs growth slowing (perhaps because the US is nearing full employment), US wage growth in December was the sharpest since 2009.
Much rejoicing everywhere, because the opposite horror of deflation had become such a worry for policymakers and investors...if not for savers or retirees.
So against the grain of New Year predictions, analysts at HSBC just issued 6 happy forecasts for 2017...all of which put growth and thus inflation higher from here.
Australia should enjoy record income from exporting raw materials, the government says, albeit with a slowdown from July.
Germany's near-2% inflation rate already looks like a "horror curve" to the headline hacks at tabloid paper Bild.
Most ugly is the impact on cash savers...squeezed between the higher cost of living and interest rates still squashed near zero by central bankers everywhere across the developed world (and well beyond it too).
Falling in real terms, after you account for inflation, those miserable interest rates would look likely to spur yet more demand for physical gold. Because when cash loses value, more and more people look elsewhere to defend their purchasing power.
And when gold turns higher on rising inflation fears, silver typically does better again. Because while there's much more of the stuff around, the global market is worth much less in cash terms. So a new inflow of money has a greater impact on prices.
"Silver prices should benefit from the upward trend in gold," reckon our friends at specialist consultancy Metals Focus. "Indeed, we expect it will outperform the yellow metal in 2017."
On their outlook, "This partly reflects silver's traditional high beta relationship with gold"...
...meaning the simple historical fact that, for every 1% move in gold, you get a 1.75% move in silver, both up or down, on a daily basis...
...which is why smart investors, such as Weekly Update readers like you, predict a stronger year ahead for silver. Fully 1-in-3 respondents to our forecast survey in December said they see silver rising 20% or more in 2017, against just 1-in-4 for gold.
But silver's rosy 2017 outlook also builds on forecasts for "firmer industrial commodity prices, in turn linked to improved demand," says Metals Focus, "especially from the likes of China and the US, where higher infrastructure spending is expected."
For tech lovers meantime, solar energy will continue to boom according to everyone who seems to know about such things. Perhaps failing to match 2016's record installations worldwide, that "will still achieve the second highest total on record" for silver needed to make photovoltaic cells according to Metals Focus.
Yes, we should be wary of taking PV demand as an unalloyed boon for silver prices. The hype of 2011 helped force the massive cuts in PV's silver use per watt of energy capacity after all.
But with the quantity of silver per cell already slashed by 80% or more over the last 5 years, there's little room left for thrifting to continue. And solar is now forecast to become cheaper than coal as a source of energy according to yet more people who claim to know about these things.
Yes again: If we weren't in the business of helping you buy and trade silver, we'd probably wonder whether this happy outlook isn't too cheerful by half...
...missing the risks of a global slump or deflation...
...never mind the turn to protectionism risking exchange controls...
...as governments fight dirty to keep the global debt bubble from bursting. (If you want to see what a credit crunch does to silver prices, check out the halving of prices in 2008.)
But sentiment remains a wonderful thing, driving the big-money decisions of professional investors just as much as the personal choices of private savers.
The key, of course, is to get ahead of the crowd...and buy (or sell) what they're about to buy (or sell) before they do. And if this year's early themes of happy inflation and stronger growth really do take hold as 2017 unfolds, that could very well make silver look like a no-brainer investment in hindsight.
Adrian Ash
Head of Research, BullionVault
Key data and market events, times in Greenwich Mean Time (CET-1, EDT+4):
- Last week Manufacturing stronger than expected worldwide on December's PMI surveys, services sector expanding faster again...
- China's central-bank foreign currency reserves held $3 trillion level, equal to 4% of global GDP, in face of capital outflows, falling Yuan...
- Japan wages tick higher, up 0.2% per year...
- Eurozone consumer-price inflation points towards 2% target level, producer price inflation ticks above zero, factory orders drop, consumer confidence least awful in 18 months...
- UK households borrow most since 2005, construction boom rolls on as average house price breaks above 8 times average income...
- US manufacturers see inflation rising fastest since 2011 (ISM survey), construction spending + vehicle sales jump with wage growth after Trump win, but new jobs creation misses forecasts, trade balance widens to worst November since 2012...
- Canada bucks Trump fears, records 1st trade surplus since 2014 with a surge in new jobs (albeit part-time)...
- Central bank watch Argentina launches weekly interest rate decisions with no change at 24.75%; no change today from central Asia's No.1 economy Kazakhstan; 7 more decisions this week, including silver producers Peru (Thurs), Argentina (Tues) + Poland (Weds); crisis-hit Brazil on Weds, South Korea on Friday...
- So far today Australia stems slide in new building projects but job adverts drop hard; Germany industrial output jumps with trade surplus; Eurozone investors confidence hits 18-month high (Sentix) as jobless rate holds 9.8% but Italy's rate rise to 11.9%...
- Later on Monday US labor market conditions index + consumer credit from November...
- Tuesday China factory-gate + consumer-price inflation, also bank lending data due...
- Wednesday UK manufacturing + industrial output, trade deficit + unofficial GDP estimate (NIESR)...
- Thursday Japan trade balance + bank lending; Eurozone industrial output; US jobless benefit claims from last week, plus federal government deficit for December...
- Friday China trade surplus; US retail sales, factory-gate inflation, consumer sentiment (University of Michigan survey)...
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