Gold, silver follow oil prices higher

The yellow metal touches a new record and silver surges to 31-year highs as investors continue to seek safety.

By TheStreet Staff Mar 7, 2011 10:54AM

Gold © Comstock Images/JupiterimagesthestreetBy Alix Steel, TheStreet


Updated at 4:06 p.m. ET


Gold prices rose again Monday and silver hit a 31-year high as climbing oil prices continued to lure investors to haven assets.


Gold for April delivery added $5.90 to settle at $$1,434.50 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,445.70 and as low as $1,428.30. The spot gold price was adding $2, according to Kitco's gold index.


Silver prices followed gold, rising 53 cents, or 1.5%, to settle at $35.86 after hitting a 31-year high of $36.74 early in the day.


As oil prices hit a two-and-a-half-year high, gold and silver followed suit. Investors were buying the metals as protection against uncertainty in the Middle East, an ongoing civil war in Libya, rising global inflation and loose monetary policies.


Stocks, meanwhile, got hit as oil crested $105 a barrel. The Dow Jones Industrial Average ($INDU) finished down 80 points at 12,090, the S&P 500 ($INX) fell 11 points to 1,310, and the Nasdaq ($COMPX) dropped 39 points, or 1.4%, to close at 2,746. 

James Moore, research analyst for FastMarkets, wrote Monday that new highs in silver could trigger some selling, especially if investors need to cover losses in other assets, "but with the situation in the (Middle East and North Africa) still extremely volatile and oil continuing to rise, both gold & silver are likely to extend on a mix of safe-haven and anti-inflationary hedging with silver set to challenge $38-40 an ounce but ultimately the all-time record of $50 an ounce."


If the situation in Libya resolves itself, however, then commodities could see more of a selloff. On Monday it was rumored that Libyan leader Moammar Gadhafi would cede power if his family was allowed to leave the country safely. That said, the scenario of a steeper correction is not in the forefront of traders' minds.


David Morgan, founder of, is buying into silver using silver stocks. "The equities are lagging the metals and if this rally is going to continue the equities will play catch up pretty quickly," he said. Morgan would use the same strategy with gold stocks versus the underlying commodity.


"Value wise, silver is still the better play," says Morgan. Currently, the silver-to-gold ratio -- the number of ounces of silver it takes to buy an ounce of gold -- is roughly 40:1. Morgan thinks the ratio could sink as low as 16, which, at current gold prices, could put silver at $90 per ounce.

Although the safe haven buying is primarily a reaction to the Middle East turmoil, Moody's downgraded Greece's credit rating Monday from Ba1 to B1 with a negative outlook reminding investors that the worst might not be over for the eurozone nations. EU leaders are meeting at periodic summits during March to develop and debate a permanent bailout fund and strict guidelines on debt reduction to secure the cash.


The lackluster jobs number in the U.S. on Friday also underscored that the Federal Reserve won't be raising rates any time soon or be making any adjustments to its $600 billion bond buying program, set to expire in June. Some have blamed the Fed’s policies for triggering high inflation worldwide, as low rates spurred a flood of money into higher yielding emerging market currencies like those in the Middle East and North Africa.


Fed chairman Ben Bernanke has said that a change in monetary policy isn't on the table unless the jobs outlook improves. Easy free money in the U.S. should offset any rate hikes out of the EU as a weak dollar would continue to support higher gold and silver prices.


The U.S. dollar index was strengthening 0.1% Monday to $76.46, which appeared to be tempering gold's gains.


Over the weekend, the Chinese government laid out its long term economic plans, which focused on taming inflation and increasing personal wealth. The move would make China rely less on export demand and more on internal consumption.


China, despite wealth inequities, bought 200 tons of gold in January and February. The figure accounts only for individual purchases, not central bank buys. More purchasing power and greater wealth should only ramp up gold investment in the country.


At the BMO Capital Markets Global Metals and Mining conference in Florida last week, many CEOs cited strong demand from China and India as indicative of gold's popularity.


Mark Cutifani, CEO of AngloGold Ashanti (AU), said "I think with China (and) India, the way the world looks at gold, the way its performed through the recent crisis that you really can't afford to not have gold in your portfolio."


Barrick Gold (ABX) CEO Aaron Regent said that "you can also see gold within countries like India and China ramp up gold demand (and it) is growing quite rapidly. So I think gold is being recognized as a monetary asset and is a great store of value ... and I think that will continue."


Demand for gold wasn't coming from the ETF sector. The SPDR Gold Shares (GLD) didn't add any tons last week despite record gold prices. Currently the ETF holds over 1,210 tons, leaving many to cite strong physical demand from China as the force behind recent highs. Shares of GLD closed up 0.3% Monday at $139.73.


ETFS Physical Asian Gold Trust (AGOL) has added 4,798 ounces since inception on January 31, 2011. The fund is not an Asian ETF, but the gold is stored in Singapore and Will Rhind, head of U.S. operations for ETF Securities, has said that factor could be appealing to Asian investors.


Gold mining stocks, a risky but sometimes profitable way to buy gold, closed mostly lower Monday along with broader equities. New Gold (NGD) fell 0.5% to $10.67 and Newmont Mining (NEM) shed 1.1% to $53.68, while Barrick Gold gained 0.3% to finish at $52.99.


Among silver stocks, Silver Standard Resources (SSRI) closed down 0.2% at $29.55 while Silver Wheaton (SLW) rose 0.1% to $45.02.


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Mar 7, 2011 11:43PM
The annual world demand for gold in 2010 was just shy of 4,000 tonnes (mind you there are 35,273.9619 ounces in a tonne). Total world demand for gold is up 9-10% year over year (YoY), the investment dynamics point to a shift from electronic exposure to physical bullion and the value of the gold demand in dollars increased 38%. A YoY decrease of 45% for OTC and stockflows (like GLD) and an increase in physical bar investment of 56% shows that investors are fleeing the derivatives and getting physical.

Gold imports in China rose 500% from 2009 - 2010 to over 200 tonnes. China also mined over 340 tonnes of gold in 2010. In January and February of this year China had already imported 200 tonnes of gold. This should come as no surprise and we should realize they are just getting started with their gold buying program. China one of the lowest percentages of gold relative to the nation's foreign reserves, they must continue to import gold if they are to achieve stability and or any sort of dominance in the new monetary system that is yet to be upon us.

more @
Mar 7, 2011 10:07PM

Let me see, gas was selling for $2.45 a gallon this summer.  Now it's selling for $3.50 and that's a price increase of 14%?  No wonder the economy is in such bad shape.  Either these people never heard of math, or it's just more lies to try and people from getting too upset. 


The price of oil goes up on speculation there might be a supply problem in the future.  This is because Lybia which has cut back on the 2% they export and even though the other oil producers can cover that loss, there's still a huge increase in the price of oil.  If any other company raised the prices because there might be a problem someday, SOMETHING WOULD BE DONE ABOUT IT.  But because the oil companies can't survive on 7billion dollar a quarter profits, this is allowed to go on. 


I wish the people of the United States had the backbone to stand up against this BS, but it's doubtful it will ever happen.  They could just cut back on all of their spending.  Why should they do this?  Same reason the oil prices go up when there's a glut of refined gas and a glut of stored oil.  Because they may need every penny they can lay their hands on soon just to survive.  I know I'm going to spend absolutely nothing on anything that isn't absolutely necessary.  If everyone did that Uncle U.S. might just tell the greedy oil speculators/oil companies to put their super-greed in check. 

Mar 7, 2011 9:47PM

When silver hit $30/oz there were a lot of people saying, "sell, take your $30". Those were about the dumbest folks on the block. The conditions that brought silver to $30 hadn't changed and persist even now. Hang on buy, on dips, and enjoy the security.

Mar 7, 2011 2:04PM


Where's all the nattering nabobs today? Did they extend the weekends at Kennebunkport?

Mar 7, 2011 9:24PM
There wouldn't be any rush to buy gold,or silver,if the Nation's economy hadn't been given away to China.Could our woes ever be solved by letting people work?Of course,the ruling elite would have to adapt,perhaps living with millions of yearly income,not billions.Hey,Congress,how much money to buy your women?I just wanna buy your women!Oh,sorry,I didn't realize the corporate goons got first dabs,my bad!
Mar 7, 2011 10:58PM

BC, that's a common reaction.  We want someone to react at, and big-oil is there.

Look at the futures market; look what happens to spot price as well.


Big oil buys and sells, don't forget that.


Oh; since this is a money / slash investing site...

Next time oil crashes buy some of public enemy No's 1, 2 or 3.  Their side-kicks in the small cap, exploration, services or Limited Partnerships will also give you tickets to the next party up!  I've already left the party, but it'll come back around...



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