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Strong Supports for Gold, HSBC Gives Silver a Nod

The price of gold continues to trade in a tight range ahead of this weekend’s Group of 20 meeting as silver took some limelight following HSBC lifting its forecasts for the metal this year and next.

The price of the U.S. dollar dropped on Wednesday as the ICE dollar index dropped to 79.965 from 80.083 in late trade on Tuesday. A strong U.S. dollar can keep the gold market from more active trade as a weaker dollar makes the price more affordable for holders of foreign currency.

Still, investors appear to have a strong appetite for riskier assets as oil prices are higher and the Dow is holding above 14,000 following a close at a five-year high. The stronger risk appetite may be attributed to the lack of a clearer direction in the precious metals market, which otherwise would attraction more active trade away from equities.

Analysts with HSBC have noted four factors driving higher prices for silver in 2013. These include higher industrial demand, steady demand from investors for hard assets, strong purchases of coin and bars, and a bottom in jewelry demand.

The analysts boosted their forecasts for silver on Wednesday from $32 to $33 per troy ounce with a conservative forecast in 2014 of $31 per troy ounce, and increase over previous forecasts at $28 per troy ounce.

HSBC noted that greater industrial silver consumption is one of the most compelling arguments in favor of higher prices.

The factors previously noted indicate two market elements and as well as industrial demand. For the most part, industrial demand for silver can be trusted to grow. However, the steadying of demand for hard assets, which is an evolution from the exodus to safe-haven assets in the 2008-2010 era, is a trustworthy indicator that the market will be robust for some time. Additionally, the strong purchases of coins and bullion may be taken as a clearer technical indicator that gold and silver bullion markets are far more robust that precious metal prices might indicate at this time.

The market continues to look for clearer direction from political leadership. Investors who would otherwise be taking clearer positions place money in equities markets at five-year highs as the range bound activity in precious metals makes an otherwise strong investment difficult to justify for money-managers looking to produce quicker yields. The demand for physical gold and silver bullion, however, is a much clearer indicator of the activity in the market.

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