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In Tough Economic Climes Where Do You Turn… To Trust in Silver or Gold…?

Saturday, April 7th, 2012


So, in tough economic climes where do you turn… do you trust in silver or gold, forex, stocks, etc..?

Especially when the global economy is facing at least 3 to 4 very significant risks simultaneously, and the likelihood of any one of them shooting the ‘global recovery’ in the foot is very high…

Fragile Confidence…

We would have recommended silver over gold until quite recently, so if you listened and did buy a hoard of the silvery stuff, forgive our gold fears and over selling clouds with silver linings… The reason being that gold had risen so far and so fast, that further buying it into the stratosphere could easily spell trouble… And while you don’t need 10,000 baht to buy a lump of silver that can fit on the palm of your hand, try it with gold and see how much you get, for what is generally an average month’s pay to a blue collar Thai worker.

The other side of the coin is that gold has indeed dropped lately, may drop further and investors haven’t been rewarded in the short term, illustrating the old adage that ‘all the glitters isn’t gold’ holding somewhat true.

Higher chance of greater EU instability:

The Golden Rise.... and Fall? Is Gold Your Choice ..?

Near no -growth, negative employment growth and higher inflation and public sector costs of large, medium and small European economies spell huge problems for the EuroZone.

Spain said in its budget presentation Tuesday that its debt levels were going to jump in 2012 to their highest levels in 22 years.

See Related Link:

So… Cash, Property, Forex or Stock…?

Property investing has typically been a goldmine here too, especially in the condo market, but there surely are no guarantees. Or just hoard it in the local bank..?

Well, for one, giving your cash to a local bank in a super-safe savings account is like giving the rich banks a free pass- on your dime… They’ll just lend it out and invest it at 8-12% on average gains, minus the measly 1-3% they’re paying you, so if you like making rich people richer, go right ahead and play on, no need to read any further…

As investors try to stay looking optimistically onward in the second quarter, one expert says a time bomb in the form of Spain is ticking away under the global economy. “Spain will be the next shoe to drop. They’ve been gradually accumulating more debt while unemployment rates are exceeding 20%. Those are economic disaster warning bells,” Tony Sanders, a Senior Scholar at George Mason University told CNBC in Singapore. “The ECB’s LTRO (Long Term Refinancing Operations) is just a hope and a prayer. How will flooding Spain’s banks with liquidity salvage a 23 % unemployment rate? It won’t, it’s just ticking away.”

Obviously, Greece and Spain together are beginning to serve an unenviable European brew, and with several other smaller economies waiting for their respective shoes to drop, the next episode in Europe’s debt crisis could get very ugly indeed.

Sanders says the current 740 billion euro ($976 billion) firewall won’t be large enough to stop contagion from a Spanish default. He thinks a repeat of 2011 is about to unfold. Last year, economic data and markets were just starting to improve when the Greek debt crisis exploded and sent investors hustling for the exits, he said.

Maybe forex/currency trading is your forte..? Bears will soon be devouring the euro

The euro was at 107.56 vs. the yen, not far from a one month trough it dug near 107. The euro could drop more, traders said, before finding support around 106 yen where the 38.2 % retracement of its recent rally and the top of the Ichimoku cloud come together. Got that..?

Tracking the dollar’s performance against major currencies stood close to a 3 week high of near 80.2 but had given back a bit of ground to just above 80.

The Australian dollar last held at $1.031, well above support at $1.026, around the 50 % retracement of the November-February rally.

The dollar hovered barely changed at 82.25 yen, in the middle of its well-worn recent range.

Is Speculation In Gold Overboard - or Warranted?

The Thai baht? It will likely trade at 31 to the dollar, as it is slowly depreciating and will shrink back some of its previous gains on expected slowing foreign direct inflows…. The recent stock market boom has helped keep the baht near 30, but with an expected tapering off in the local market, longer Thai holidays in April and May and fewer than expected tourists due to recent events, expect a gradual decline closer to 32.

See this Related Link to learn more:

Fragile Confidence…

We would have recommended silver over gold until quite recently, so if you listened and did buy a hoard of the silvery stuff, forgive my gold fears and for seeing clouds with silver lining… The reason being that gold had risen so far and so fast, that further buying it into the stratosphere could easily spell trouble… and while you don’t need 10,000 baht to buy a lump of silver that can fit on the palm of your hand, try it with gold and see how much you get for what is an average month’s pay to a blue collar Thai worker.

The other side of the coin is that gold has indeed dropped lately and so investors haven’t been rewarded in the short term; with the adage that ‘all the glitters isn’t gold’ holding somewhat true at the moment.

Of course, the overall price of gold is up sharply: approximately 5% so far this year, 10% in 2011, 30% in 2010, and almost 25% in 2009. So in retrospect we can clearly see an average decline in yearly increases to the current marginal gains of just 5% to date. Well, just putting your cash into a fixed- term CD will do that. The difference is perhaps your freshly minted money will depreciate while the old gold nicely accelerates vis- a- vis most currencies.

Yet, if the trend is that gold is currently at or near equilibrium, it would be hard to recommend investing more than say, $10,000 in it without fresh impetus. Buying and selling in Thailand is quite easy, but beware of scams with gold bars as the interior can be found to contain substitute metals, while the weight is matched exactly to the gold weight stamp and the finishing on the bar is nearly impossible to spot- until someone checks it (perhaps x-rays) or decides to melt it down- in which case you could be both defrauded and charged with fraud yourself – all unwittingly- as the seller to you may claim or have genuinely been.

Having some part of your investment in gold is always a good idea. If you invested equally in gold and silver, then you might have a better hedge, unless they both lost value in tandem… In which case you could always turn some of it into custom jewelry…

Gold has clearly been appreciating in value faster than the dollar has been declining for the past few years. So, even taking into account the risks of a default in Europe, a war with Iran, a revisited full blown economic recession in the U.S., or even a growth slowdown or worse in BRIC’s countries like China and India, is gold overvalued?

According to the commonly accepted market theory of course, something is worth what people are willing to pay for it, so by definition, gold can’t be overpriced — or underpriced, for that matter, so long as it can be freely traded.

One way of looking at this is to examine the change in the nominal dollar price of gold and determine how much of that change is due to the decline of the value of the dollar and how much is due to market demand (or lack of it). Assuming that gold is a near perfect store of value, you would expect 100% of the change in its dollar-denominated price to be due almost entirely to fluctuations in the value of the dollar.

While international affairs have grown even more tenuous….

The Euro is About as Popular as Pink Slime Right Now

The financial crisis shook public faith in big banks and governments. The world’s three major currencies – the dollar, euro, and yen – have been weakened by a massive housing crash, the Greek and now Spanish-Italian debt saga, and a massive Japanese natural environmental and manmade nuclear catastrophe, respectively.

When currencies falter, buyers habitually retreat to gold as a hedge against inflation. Against this bleak and worsening backdrop, the price of gold is a time honored global anxiety index.

For doomsayers, gold has become a particularly potent symbol of a bulwark against the coming economic system’s breakdown and possibly looming mass societal apocalypse.

Is there some good news for silver…? …mmm, No, Not Really.

Although confidence in the U.S. recovery remains fragile, any fresh signs of a downturn could fuel further speculation of more quantitative easing, lifting gold and consequently silver. However, the Bernanke Bus just left that one hanging at the curb, so it looks like fundamentals in the current vast sea of monetary liquidity will have to be enough to carry the day for now….

A cyclical increase in electronics manufacturing activity in the United States and China would lift industrial demand for the precious metal, and the photovoltaic industry is also likely to grow in emerging markets. On the supply side, miners are expected to have produced another record amount of silver in 2011,with metals investing consultancy GFMS forecasting more than a 30 million ounce rise in output.

Yet overall, the picture for silver is darker this year than it was a year ago, and other metals have greater appeal. While prices may rise again, peaks are likely to be lower and shorter lived than last year’s highs. Sigh…

As a smaller and less liquid market than gold, silver tends to outperform when precious metals prices are rising overall, but underperform when they fall. Thus, slackening appetite from investors would seriously undermine silver.

“The dislocation in the valuation between the very sharply rising gold price and silver, which underperformed for 10 years, was so large that the investment community jumped on the bandwagon and drove its price high within a year,” chief executive of Sector Investment Managers, said.

So, in plain speech, if you bought silver and made money in the past, consider yourself lucky.

“The normal situation has now returned where silver behaves much more like other industrial metals. Investors are no longer looking at it as a safe haven asset,” he said. “It will probably underperform for a good few years.” So, from a fundamental point of view, silver’s foundations are looking increasingly shaky.

Stocks here are also looking less attractive by the minute. The SET or Stock Exchange of Thailand showed remarkable gains over the last 2 quarters, exceptional performance given the damaging effects of the floods in later part of the year, which just began to turn around in the first quarter, while US stocks had a disappointing week as worries about the euro zone and the jobs front made investors hesitant to jump in.

The Thai index is one of the emerging markets’ investment darlings now and the rise in foreign investment in the Thai market reflected that. In fact it is in some ways shining brighter than say India or China which are slowing down in their growth and property sectors and simultaneously being squeezed and seeing higher inflation, much of it stemming from food and energy import prices. Thailand will soon as well, but it may be further off on the horizon and there are still likely at least a couple of good quarters laying ahead.

Much of Thailand’s energy consumption is based on coal, bio-fuels, natural gas, also NGV/CNG/LNG  for vehicles and diesel, which are typically much cheaper than heavier reliance on other sources like pricier lighter grades of refined petroleum, while solar energy and harvesting bio-fuels producing crops like corn, palm oil and other plants are advancing rapidly.

The SET tends to piggy back heavily on the US market, so if investing in the Thai market, the bellwether is Wall St., along with following the top 20 or so major blue chips in the SET 50, especially in the energy, agricultural, banking and telecoms sectors. The PTT group and TOP are major players in the energy index, while BBL (Bangkok Bank), SCB, and KBANK lead the financial shares. CP-ALL and CPF are often dominant in food and retail food, while AIS, TRUE, JAS and DTAC have the largest capitalization in telecoms.

Caution is advised if investing in the SET as current P/E levels are characteristically high during peak dividend season, April- May is the highest peak for U.S. markets traditionally, and the U.S. and Thai markets have been running nearly consecutive bullish weeks for most of the last 4 to 6 months running. The recent pullback is indicative of a near term correction ahead, if not imminently.

Things to remember near term:

U.S. stocks also tend to trade down on the Monday following a Good Friday.

The last session of the week on Thursday was lackluster as the major indexes ended largely unchanged after suffering some major volatility earlier in the week. Volatility may return on Monday as markets digest the latest employment numbers.

Those figures, released on Good Friday when markets were closed, showed a 120,000 jobs net gain in non-farm payrolls which was well below the 200,000 plus jobs that were expected. It was the first big disappointment on the employment front in months. The unemployment rate overall however, declined to 8.2 %

Stay tuned as we follow more Thai, Asian and global economic news…

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