Could Silver Reach $136.67 Per Ounce?

Cassie Bastien

5/9/2017 1:02:57 PM

Daily Gold & Silver Market Report – 05/09/2017

At the Atlas 400's annual closed door meeting, the CEO of one of the largest Silver mining companies in the world said that “Without Silver, our entire society would go back to the Stone Age.” However, ValueWalk reporter “Sovereign Man” says, “the same story applies to just about every industrial commodity in the world, from copper to lumber to recycled steel.” That being said, Silver is not only a Precious Metal but also has industrial qualities, which makes the gray metal that much more appealing to investors. In the late 1960s, the U.S. Geological Survey estimated the Silver to Gold ratio within the earth's crust was about 21:1. Keeping that in mind, the mining CEO mentioned the current mining production ratio is actually about 9:1, which is extremely interesting when discussing supply and demand. Therefore, Sovereign Man said, “In theory if the new metal supply is 9:1, then the price should be 9:1 (which would be a Silver price of $136.67 [per ounce]).” Reality tells us that is purely based off theory, although commodity prices tend to move dramatically when the market realizes there is a serious supply/demand discrepancy. So while some may find it mindless to see spot Silver reach over $100, Sovereign Man thinks “there are certainly credible reasons why the ratio should close the gap and move MUCH lower.”

Gold Prices Hit 8-Week Lows

Although the yellow metal tested its 100-day moving average earlier Tuesday, it is holding above that line for now. UBS Analyst Joni Teves spoke on France's recent presidential election, saying, “With one of the largest political risk events now cleared, some consolidation is warranted, albeit political uncertainty lingers in Italy and is likely to remain for some time.” Mark To, head of research at Hong Kong's Wing Fung Financial Group, said, “Overall sentiment has been turning from risk aversion to normalized risk tolerance levels, so we can see that demand for Gold has been decreasing.” In other news, Reuters Reporter Swati Verma says, “Wall Street's volatility index, which measures implied volatility of stock options and is often seen as an investor fear gauge, closed at 9.77 on Monday, its lowest since December 1993.” Although the Federal Reserve did confirm another interest rate hike will happen in 2017, St. Louis Fed President James Bullard said Monday the U.S. economy's weak 2017 performance should slow plans for further rate increases. Thus, Gold prices could see demand take a hit from higher rates as it pays no interest.

Should Wall Street Be This Calm?

The last time the VIX volatility index plunged to the unusually-low level of 9.8 was December 1993, when President Bill Clinton signed NAFTA into law. Nicholas Colas, chief market strategist at brokerage firm ConvergEx, wrote in a recent report to clients “There is an overwhelming market narrative that equates to, 'Don't worry, be happy.'” Although Wall Street remains calm during all of the current global volatility, “some worry that today's extremely low levels are artificially created by the Federal Reserve and signal that Wall Street has become complacent about risk,” Reporter Matt Egan with CNNMoney.com said. However, some investors feel it may be good that markets are remaining calm. On Monday, Egan said, “the VIX plunged 8 percent and the S&P 500 closed at a record high as investors cheered the victory by pro-EU candidate Emmanuel Macron in France's presidential election.” On the other hand, some worry things have gotten too quiet. Furthermore, Egan says, “Observers blame the lack of volatility on extremely low interest rates from the Fed and other global central banks. ... The question for investors today is whether low volatility signals smooth sailing ahead or a rude awakening in store.”

At 2:03 p.m. (ET), the APMEX Precious Metals spot prices were:

• Gold, $1,218.50 Down $10.80
• Silver, $16.21 Down $0.14
• Platinum, $905.00 Down $16.60
• Palladium, $798.30 Down $12.30

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