Gold down following Basel III accord

However, Ms. Catherine Raw, a portfolio manager at BlackRock Inc. opines that while it has become quite clear that the advent of such funds has lent a tremendous hand of support to silver prices, the same phenomenon poses a rising risk to same; precisely in the manner that the situation in the gold niche has morphed into. "Physically backed metals ETFs are a source of demand in the marketplace now," she noted. They could become a source of supply in the future."

Add to that, the observation by Morningstar ETF strategist Paul Justice that “it should be noted that silver isn't a foolproof inflation hedge," he wrote. "Unlike gold, silver has industrial applications, which means it's more likely to fluctuate with economic ups and downs."

Highlighting the similar, ETF-engendered paradigm in gold bullion, Waverly Advisors, in a September 3rd strategy note advised caution if gold prices rise to new highs and later show signs of weakness. "There will be many trapped bulls, and with the public increasingly involved in this market through ETFs such as SPDR Gold Shares, there could be a dramatic stampede for the exits," the investment firm said. We brought to your attention last week the fact that DailyFX strategists had found that a whopping 89% of the variance in the spot gold price is explained by variance in the holdings of the SPDR Goldshares ETF.'

Perhaps some of the above has led to a recent assessment of prices by the Economist Intelligence Unit (EIU) suggests that “predicting [gold] prices in the period ahead can be tricky business.” According to the EIU report, expert sources in the international gold industry are exercising more than a hint of caution about future gold prices. The report says that “Phillip Gibb, manager of the 600 million pound Jupiter Absolute Return Fund, recently sold out his position in gold.” One Seeking Alpha analyst tendered the assessment that “gold looks expensive relative to stocks and to agricultural commodities on a historical basis.”

Expensive or not, history also however shows that keeping a core allocation in the yellow metal for a just-in-case eventuality is not only prudent, but perhaps absolutely essential. Not wearing a (golden) helmet while riding the wild investments bucking bronco has its risks as well, obviously. It just does not mean that the helmet has to be as large, or larger, than the rider, or in some cases the stallion.

Happy galloping over to the Kitco eConference this morning! Giddy up!

Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America

Websites: www.kitco.com and www.kitco.cn

About the Author
Jon Nadler

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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