Saturday, April 16, 2011

Gold Prices Pop; Silver at 31-Year High

By Alix Steel

NEW YORK (TheStreet ) -- Gold prices popped higher Thursday as investors opted for gold over stocks on disappointing jobs data and mixed earnings in the U.S.

Gold for June delivery added $16.80 to settle at $1,472.40 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,475.20 while the spot gold price was rising more than $14, according to Kitco's gold index.

Silver prices jumped more than $1, currently trading at $41.69 an ounce, and are eyeing the $42 level as its next conquering point.

Gold and silver skyrocketed Thursday as investors bought gold instead of stocks after U.S. initial jobless claims rose by an unexpected 27,000 last week to 412,000 -- past the critical 400,000 mark. The jobs environment had been slowly improving so the number, along with stronger world-wide inflation and anxiety over earnings, led investors back into precious metals.

George Gero, senior vice president at RBC Capital Markets, says that the gold/silver ratio now around 35 and dollar gyrations are keeping metals in rally mode. "Higher short term rates in ECB and elsewhere have not deterred investors, Goldman Sachs thinking crude may be fully priced now also not deterred investors ... so silver and gold are now possible joint performers with ... support at $1,425 for gold [and] $40 for silver."

Gold almost touched its record intra-day high of $1,478 an ounce. When it does, the move will most likely bring even more technical traders back into the market -- the "hot" money that is typically responsible for big price swings -- making the next target for gold at $1,500 an ounce.

Silver is traded in a smaller market and subject to even more speculative buying. Since September of 2010 on QE2 rumors, silver has risen 110%, but its recent climb has many experts wondering if the "poor man's gold" is overbought.

The "safe haven bids or monetary related bids that floated to silver heavily during February and March, if that froth comes out you could have a reversion to a better mien," says Jon Nadler, senior analyst at Nadler thinks silver should be between $25-$30.

Nadler argues that the U.S. commitment to tackling its budget deficit, underscored by President Obama's speech Wednesday, will support the U.S. dollar and weigh on commodities. The U.S. dollar index, however, was down 0.33% to $74.71 on the rough jobs data.

But for Friday the story will really be about inflation. Producer prices in the U.S. rose 0.7% in March, weaker than expected, while the core reading came in slightly hotter at 0.3%. Inflation in March is supposed to rise to 2.6% and a higher reading Friday could trigger another gold rally as investors bet the Federal Reserve won't raise rates fast enough to fight rising prices.

Gold is typically favored during times of inflation, despite the fact that gold and CPI prices are only negatively correlated 12% of the time, according to data from the S&P. The idea is that inflation makes paper money worth less and gold more valuable.

At the end of 1949 through the first month of 1950, gold rallied 9.5% while inflation hit 10%. From 1974 through 1980, gold rallied 334% as inflation climbed to 14%. Gold is up more than 33% since the beginning of 2010, when inflation talk ramped up.

Gold has been shrugging off rate hikes, the only anecdote to inflation, but Nadler thinks it will take a while for tighter monetary policies to hurt the market. "It's a process. You have to look at how [these] measures take affect going into the second half of this year." Nadler thinks starting in 2012 central banks will raise rates consistently and aggressively.

Also paving the road for higher gold and silver prices Thursday is general market uncertainty. Investors seem to be hesitant after a solid earnings report. JPMorgan(JPM_) originally led markets higher Wednesday but the positive news couldn't sustain the rally. Investors are even more cautious on Google(GOOG_) and Bank of America(BAC_), reporting Thursday and Friday, respectively. In Europe, there are further worries that Greece might need to restructure its debt making gold more attractive as a safe haven asset.

Gold mining stocks, a risky but potentially profitable way to buy gold, were popping. Kinross Gold(KGC_) was adding 0.77% to $15.65 while Goldcorp(GG_) was up 2.36% at $53.98.

Other gold stocks, Agnico-Eagle(AEN_) and Eldorado Gold(EGO_) were trading at $65.71 and $17.84, respectively.

NovaGold(NG_) is up 2.72% to $13.21 after the company announced the results of its preliminary economic assessment for its Ambler property, which contains 28.9 tons of indicated and inferred resources of copper and zinc. Jim Cramer also mentioned this stock positively on Mad Money Wednesday .

Coeur D'Alene Mines(CDE_) was tanking more than 7% on a report that Bolivia will seek to expropriate mines, previously sold by other governments. This move would affect Coeur's San Bartolome silver mine which produced 6.7 million ounces of silver in 2010.

When asked to comment, spokesman for the company, Tony Ebersole, said that the property rights were not "the subject of expropriation. We operate in a mine where title already belongs to the State and backed by Supreme Decree." Ebersole said that production was operating as usual. Worse case scenario, Coeur has political risk insurance policies that covers expropriation.



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