UNITED NATIONS – President Barack Obama said Thursday that U.S. cooperation with China has helped ease global financial turmoil, but behind closed doors he and Premier Wen Jiabao continued wrangling over American charges that China’s currency is undervalued. A U.S. official who was present called talks between the two “positive” and “genuine” but acknowledged that the currency dispute was the dominant issue.
U.S. exporters contend China’s yuan is kept artificially low, giving Chinese companies an unfair advantage. In a speech Wednesday, Wen denied that — and warned against letting the issue be politicized.
“There was a lengthy discussion of the impact and the politics of the issue,” said Jeffrey Bader, an Asia expert on Obama’s National Security Council.
Currency is not the only point of tension between the countries.
China is lashing out at the United States for what Beijing says is interference in its territorial disputes in the South China Sea. China is also angry over U.S. arms sales to Beijing rival Taiwan and Obama’s meeting earlier this year with the Dalai Lama, the exiled Tibetan Buddhist leader China calls a separatist.
Also Thursday, the United States urged China and Japan, the top U.S. ally in Asia, to aggressively and quickly resolve a territorial dispute that has deepened animosity between the longtime rivals. Bader said Wen reiterated China’s intent to gradually allow the yuan to rise. But Obama has publicly said that’s not happening fast enough. The meeting with the Chinese leader came on the sidelines of the U.N. General Assembly meeting in New York.
MUMBAI (Commodity Online): Gold continued its upward streak in Asian trade on Thursday, however did not progress towards its psychological level of $1,300 due to firming US dollar against major currencies. Domestic gold futures are also traded strong in tandem with global markets sentiments. The benchmark COMEX Gold futures are quoting at $1293.30, up $1.20 from the previous close. Prices rallied to a high of $1298 per ounce in the floor trading.
MCX Gold futures are yet again eying their all time highs of Rs 19257 per 10 grams. The counter currently quotes at Rs 19217 per 10 grams, up Rs 32 or 0.17% on the day. Watch out for more gains till the counter maintains hold above Rs 19200 levels. Gold’s advance in recent sessions has been very much a function of dollar weakness, so it was no surprise the move stalled Thursday with the euro capped around the $1.34 level. Gold in euros has fallen 1.3% this week to EUR964/oz.
Gold jumped as the dollar tumbled the day after the Federal Reserve raised expectations that more monetary easing was on the way. In addition to dollar weakness, gold has gotten a boost from concerns about the stability of the financial system and the outlook for fiat currencies in general.
Silver bull market to beat Gold
Gold surged to an all-time record high of $1,298 an ounce yesterday (Wednesday) after a U.S. Federal Reserve plan to jump-start the American economy triggered a slump in the U.S. dollar.
The yellow metal has now rallied for five straight trading sessions and is up about 18% for the year. Investors are waking up to the fact that the central bank’s plan to use U.S. Treasury purchases as a means of injecting another $2.3 trillion into the U.S. economy is only going to further debase the greenback.
There’s no doubt that the ongoing slide in the dollar is going to be bullish for gold. But investors will do a lot better to focus on silver – the “other” precious metal.
“People are finally starting to understand that quantitative easing will devalue the currency,” Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York, told Bloomberg News. “That’s why they’re shifting into gold and silver.”
Silver and Gold: The Recent One-Two Punch
Long the “poor cousin” to gold – and badly overshadowed by the “yellow metal’s” big price run-up – silver is finally getting some well-deserved respect from investors. As a result, it’s been on a tear of its own.
Silver for December delivery closed at $20.82 an ounce on Friday – its highest price since the Hunt brothers of Texas tried to corner the silver market in 1979. After closing at $20.64 an ounce on Tuesday, silver surged more than 2.5% to reach $21.16 an ounce late yesterday afternoon.
As readers of both Money Morning and my affiliated Global Resource Alert advisory service well know, we expected this all to happen.
In July, for instance, I predicted that “we’ll see governments panic at the next sign of economic weakness. I think a next round of print-and-spend will put the U.S.’ $700 billion stimulus plan to shame – it’s likely to top $1 trillion.”
Gold’s enjoyed several strong periods in recent years – though previous surges were typically followed by sell-offs and periods of weakness. This time around, it may have been Goldman Sachs Group Inc. (NYSE: GS) that re-lit the gold bull’s fuse. During a Sept. 14 conference call, Goldman U.S. Chief Economist Jan Hatzius stated that “webelieve that purchases of U.S. Treasury securities cumulating to $1 trillion or more are the most likely cornerstone of the program; that the Sept. 21 FOMC meeting is probably too early for a big announcement, but that Nov. 2-3 is a possibility.”
Gold prices soared $26 an ounce – or nearly 2% – that day alone. Yesterday we saw the December gold futures hit the $1,298-an-ounce record, before ultimately closing at $1,292.30, up $17.90 an ounce. Spot gold was last quoted up $4.00 at $1,291.50.
Gold observers know that all this fiat-money debasement means only one thing: higher gold prices.
The powerful movement we’ve seen in gold and silver in recent days is clearly due to the Fed’s promise to stimulate the economy (as well as its frank concerns that growth is below target).
Concerns about the dollar have been growing: Back in August, the central bank indicated its willingness to buy U.S. Treasury bonds with mortgage bond proceeds. Then the Obama administration unveiled an additional stimulus plan of its own – this one worth about $180 billion.
Given the bullish outlook for gold, it’s no surprise there’s been a sea-change among the world’s central banks. Most are holding onto the gold that they have. Some are actually adding to their cache of the yellow metal. Indeed, with its purchase of more than $400 million worth of gold at the top-dollar spot market price earlier this month, Bangladesh became just the latest example of an emerging economy that’s purposefully adding to its gold reserves.
Since “primary” bull markets can last a long time, it’s looking increasingly likely that 2010 will become the eleventh-straight year that ends with higher gold prices.
That brings us back to silver.
Silver: Gold’s Lap Dog No Longer
It’s easy to see how gold’s performance could be overshadowing the impressive gains also being posted by silver. But ignoring silver today in favor of gold could wind up costing you dearly.
I’m not saying to ignore gold. That would be crazy in light of the probable debasement of the U.S. dollar, which should keep gold surging to new all-time highs.
But you need to consider investments in silver because of the leverage the white metal has on gold.
It’s important to remember that – in the long run – the performance of silver depends upon the performance of gold. Silver gains typically lag those of gold, but they can also strongly surpass them. And in a drawn-out bull market, a significant portion of gains will be made near the end of the run. So if you’re serious about adding silver to your portfolio, make patience your friend.
Silver has yet to set any new all-time highs, but at roughly $21 an ounce, it’s already just broken its 2008 bull-to-date high of $20.79. When it hit that level in 2008, gold was setting a price record, breaking the psychological barrier of $1,000/ounce for the first time ever.
And having just breached the $21-level recently, momentum traders are likely to drive new silver buying.
But silver’s a funny animal, especially since it has both industrial and monetary attributes. Plus, much of the silver produced today is a byproduct of the production of such base metals as zinc and lead. So its supply isn’t always a function of demand. A lot of the silver supply is used up by industry, so the price of silver can often track the broader markets.
That’s why its price action of late is so intriguing – and revealing.
Silver’s Recent Run
Silver maintained a respectable 10% gain in the five months that ended in late August. Since then, it has tacked on a blistering additional gain of 13%.
Until the stock panic of late 2008, the silver-to-gold ratio (the number of ounces of silver required to buy one ounce of gold) had averaged 55 over the preceding 3½ years. The financial crisis freaked investors out, pushing that ratio to an irrational 75. It has slowly worked its way back to normalcy, but late August still saw it at the 68 level.
In the past four weeks, the ratio has worked its way back to 62.
What does this mean? Well, despite new record gold prices, silver’s been clawing back much faster over the past month, and has outperformed the Standard & Poor’s 500 Index by 18% year-to-date, with no signs of slowing.
Now that silver has bettered its bull-to-date high of $20.79 – and could well hold the $21-an-ounce level – the white-hot/white metal should attract additional investors, including those who weren’t even paying attention before.
Gold is already nearly 30% higher than it was at $1,000 back in March of 2008. Silver would need to gain another $5 an ounce just to keep pace (a 24% gain from here), and that’s if gold just stands still, a scenario I’d rate as highly unlikely.
What’s more, silver could well be poised to explode to the $25 to $27 levels as we enter the strongest time of the year for precious metals, since this is the time of the year during which Asian buying is ramping up for investment and cultural reasons.
That makes this an opportune time to take positions in silver.