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Gold Futures Extend Rally on Demand for Haven; Silver JumpsMay 07, 2010, 2:42 PM EDT By Pham-Duy Nguyen

May 7 (Bloomberg) -- Gold rose to a near record in New York, capping the third straight week of gains, as Europe’s fiscal crisis spurred demand for the metal as a haven. Silver jumped the most since November.

The MSCI World Index of equities dropped to a three-month low on speculation that Europe’s debt crisis will spread. Gold advanced to as high as $1,214.90 an ounce, 1 percent below the Dec. 3 record, after the Dow Jones Industrial Average yesterday had the biggest intraday loss since the market crash of 1987.

“Gold is the first level of safe-haven appeal,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “There’s a lot of fear out there, and who knows where the next shoe will drop? People want to be in something tangible coming into this weekend.”

Gold futures for June delivery rose $13.10, or 1.1 percent, to $1,210.40 an ounce on the Comex in New York, for a 2.5 percent increase this week and a 10 percent advance for this year. The all-time high is $1,227.50.

The Group of Seven is holding a conference call today to discuss Greece’s debt risks following the plunge in global equities.

“People are nervous about what’s going on in the rest of the world,” said Michael Cuggino, who manages $6 billion in the Permanent Portfolio fund, which includes a 20 percent holding in bullion. “It’s a safe bet that the bigger the problem is in Europe, the larger the impact it will be on the U.S. economy.”

‘Financial Turmoil’

The Standard & Poor’s 500 Index dropped as much as 3 percent today, and the bonds of debt-laded nations in Europe tumbled.

Gold “does well in periods of financial turmoil, so it is good to have some just in case,” said Barry James, who helps manage $2 billion at James Investment Research in Xenia, Ohio, including a 5 percent allocation in exchange-traded funds in bullion and mining stocks.

The euro rose as much as 1.4 percent against the dollar and fell as much as 0.3 percent. The 16-nation currency tumbled 5.1 percent in the previous four sessions.

“It’s a flight to safety against these wild currencies,” said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. “Gold being the international currency is the most stable environment now.”

Gold priced in U.K. pounds and Swiss francs climbed to records today. The metal denominated in euros reached an all- time high yesterday.

Assets in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, yesterday jumped 19.78 metric tons to a record 1,185.79 tons.

Demand for gold bars and coins was “exceptionally strong” yesterday, notably in Germany this week, UBS AG said in a report.

Silver Rally

Some investors purchased silver because gold is too expensive, analysts said. “Silver is the poor man’s gold,” said Klopfenstein of Lind-Waddock. “If people want a true safety instrument, they should be in gold.”

Silver futures for July delivery rose 93.6 cents, or 5.3 percent, to $18.451 an ounce, the biggest gain Nov. 16. Today’s rise helped silver narrow its loss for the week to 0.5 percent.

“Silver’s cheap,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “It got hammered earlier this week and Europe just came in and scooped it all up.”

Platinum futures for July delivery dropped 70 cents to $1,665.80 an ounce on the New York Mercantile Exchange, narrowing the week’s loss to 4.5 percent. Earlier, the metal fell as much as 1.3 percent.

Palladium futures for June delivery fell $3.90, or 0.8 percent, to $510.20 an ounce, capping an 8.2 percent loss for the week. It was the biggest weekly decline since early March.

--With assistance from Nicholas Larkin in London. Editors: Michael Arndt, Daniel Enoch.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

Why Are Silver Sales Soaring?
Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

The U.S. Mint just reported another record, but this time it wasn’t for gold. The Mint sold more Silver Eagles in March and in the first quarter of the year than ever before. A total of 9,023,500 American Silver Eagles were purchased in Q110, the highest amount since the coin debuted in 1986.

While this is certainly bullish, there’s something potentially more potent developing in the background. Namely, how this matches up with U.S. silver production. Like gold, the U.S. Mint only manufactures Eagles from domestic production. And U.S. mine production for silver is about 40 million ounces. In other words, we just reached the point where virtually all U.S. silver production is going toward the manufacturing of Silver Eagles.

Yikes.

This is especially explosive when you consider that roughly 40% of all silver is used for industrial applications, 30% for jewelry, 20% for photography and other uses, and only 5% or so for coins and medals.

To be sure, mine production is not the only source of silver. In 2009, approximately 52.9 million ounces were recovered from various sources of scrap. Further, the U.S. imported a net of about 112.5 million ounces last year. (Dependence on foreign oil? How about dependence on foreign silver!) So it’s not like there’s a worry there won’t be enough silver to produce the Eagle you want next month.

Still, why so much buying? The silver price ended the quarter up 15.5% from its February 4 low – but it was basically flat for the quarter, up a measly 1.9%. We tend to see buyers clamoring for product when the price takes off, so the jump in demand wasn’t due to screaming headlines about soaring prices.

I have a theory.

For some time, silver has been known as the “poor man’s gold.” Meaning, silver demand tends to increase when gold gets too “expensive.” The gold price has stubbornly stayed above $1,000 for over six months now and spent much of that time above $1,100. You’d be lucky to pay less than $1,200 right now for a one-ounce coin (after premiums), an amount most workers can’t pluck out of their back pocket. But Joe Sixpack just might grab a “twelve-pack” of silver.

What would perhaps lend evidence to my theory is if gold sales were down in the face of these higher silver sales.

The U.S. Mint reported a decline in gold bullion sales of 20.8% this past quarter vs. the same quarter in 2009. Further, other world mints have seen sharp declines in gold bullion coin sales as well: the Austrian Mint reported an 80% drop in sales for the first two months of the year and the Royal British Mint a 50% decline in gold coin production for the first quarter.

What’s even more dramatic is the difference in the dollar value of the sales. Gold Eagle sales in the U.S. dropped $10,263,500 from a year earlier – but silver sales increased by $61,855,290. So, not only did silver sales make up the drop in gold sales, they exceeded them by $51,591,790.

Is the rush into “poor man’s gold” underway?

Why the answer to that question is significant is that a shift toward silver for this reason could signal we’re inching closer to the greater masses getting involved in the precious metals arena. And that – for those of us who’ve been invested for awhile now – would be music to the ears. Because when they start getting involved, the mania will be underway, and from that point forward, it’s game on.

I’m not saying the mania is starting, and I actually think we could see another sell-off before things take off for good. Gold could dip to $1,000 and maybe even $950, with silver going to the $14-$15 range. But as clues like these begin to build up, we’ll know we’re getting closer. (And any drop to those ranges would clearly be a major buying opportunity.)

Everyone talks about gold, myself included, but a meaningful portion of one’s precious metals portfolio should be devoted to silver. The market is tiny, making the price potentially explosive. Remember that in the ‘70s bull market gold advanced over 700%, but silver soared over 1,400%.

Don’t be a “poor man” by ignoring gold’s shiny cousin.

While buying silver is a must, it’s the silver stocks that will truly soar in a mania. And I’m convinced we recommend the two best silver producers in the world. Get their names and our suggested entry points with a risk free trial to Casey’s Gold & Resource Report... click here.

Jeff Clark, Senior Editor, Casey's Gold & Resource Report

The U.S. Mint just reported another record, but this time it wasn't for gold. The Mint sold more Silver Eagles in March and in the first quarter of the year than ever before. A total of 9,023,500 American Silver Eagles were purchased in Q110, the highest amount since the coin debuted in 1986.

While this is certainly bullish, there's something potentially more potent developing in the background. Namely, how this matches up with U.S. silver production. Like gold, the U.S. Mint only manufactures Eagles from domestic production. And U.S. mine production for silver is about 40 million ounces. In other words, we just reached the point where virtually all U.S. silver production is going toward the manufacturing of Silver Eagles.

Yikes.

This is especially explosive when you consider that roughly 40% of all silver is used for industrial applications, 30% for jewelry, 20% for photography and other uses, and only 5% or so for coins and medals.
To be sure, mine production is not the only source of silver. In 2009, approximately 52.9 million ounces were recovered from various sources of scrap. Further, the U.S. imported a net of about 112.5 million ounces last year. (Dependence on foreign oil? How about dependence on foreign silver!) So it's not like there's a worry there won't be enough silver to produce the Eagle you want next month.

Still, why so much buying? The silver price ended the quarter up 15.5% from its February 4 low - but it was basically flat for the quarter, up a measly 1.9%. We tend to see buyers clamoring for product when the price takes off, so the jump in demand wasn't due to screaming headlines about soaring prices.

I have a theory.

For some time, silver has been known as the "poor man's gold." Meaning, silver demand tends to increase when gold gets too "expensive." The gold price has stubbornly stayed above $1,000 for over six months now and spent much of that time above $1,100. You'd be lucky to pay less than $1,200 right now for a one-ounce coin (after premiums), an amount most workers can't pluck out of their back pocket. But Joe Sixpack just might grab a "twelve-pack" of silver.

What would perhaps lend evidence to my theory is if gold sales were down in the face of these higher silver sales.

The U.S. Mint reported a decline in gold bullion sales of 20.8% this past quarter vs. the same quarter in 2009. Further, other world mints have seen sharp declines in gold bullion coin sales as well: the Austrian Mint reported an 80% drop in sales for the first two months of the year and the Royal British Mint a 50% decline in gold coin production for the first quarter.

What's even more dramatic is the difference in the dollar value of the sales. Gold Eagle sales in the U.S. dropped $10,263,500 from a year earlier - but Silver Eagle sales increased by $61,855,290. So, not only did silver sales make up the drop in gold sales, they exceeded them by $51,591,790.

Is the rush into "poor man's gold" underway?

Why the answer to that question is significant is that a shift toward silver for this reason could signal we're inching closer to the greater masses getting involved in the precious metals arena. And that - for those of us who've been invested for awhile now - would be music to the ears. Because when they start getting involved, the mania will be underway, and from that point forward, it's game on.

I'm not saying the mania is starting, and I actually think we could see another sell-off before things take off for good. Gold could dip to $1,000 and maybe even $950, with silver going to the $14-$15 range. But as clues like these begin to build up, we'll know we're getting closer. (And any drop to those ranges would clearly be a major buying opportunity.)

Everyone talks about gold, myself included, but a meaningful portion of one's precious metals portfolio should be devoted to silver. The market is tiny, making the price potentially explosive. Remember that in the '70s bull market gold advanced over 700%, but silver soared over 1,400%. Don't be a "poor man" by ignoring gold's shiny cousin.