HardAssetsInvestor

September 25, 2012

ETF Holdings Hit Records As Investors Buy Millions Of Ounces Of Gold & Silver, Prices Poised To Spike

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We offer our latest analysis on the precious metals market.

Precious metals continued to hold in a narrow range this past week, as gold and silver prices consolidate just under their respective key support levels of $1800 and $36 per ounce. News flow has been extremely light following the Federal Reserve’s Sept. 14 decision to purchase $40 billion of mortgage-backed securities a month, indefinitely.

The next major catalyst for the sector may be the approaching U.S. fiscal cliff at the end of the year—when automatic spending cuts and the end of the Bush tax cuts will go into effect, barring intervention by Congress.

In the meantime, investor flows and technical trading patterns may dictate price action. In that regard, the bulls are in firm control. Gold exchange-traded fund holdings reached a record 81.9 million troy ounces on Monday, up almost 1.4 million in only a week.

Since the beginning of the year, holdings are up 6.2 million troy ounces, with most of that increase taking place after July, when speculation began to mount that the Fed would initiate another round of quantitative easing.

Gold isn’t the only metal that investors are buying. Silver ETF holdings spiked to 596 million troy ounces last week, close to the record levels set last spring when the gray metal made its sizzling run to $50.

Silver prices could spike much higher should investors continue to plow funds into exchange-traded funds that hold silver bullion. The silver market is much smaller than that of gold, and incremental investor inflows have a much more dramatic impact on prices.

Bottom Line: We remain bullish on gold and silver and anticipate that the metals will make their way to the next resistance levels at $1920 and $40 in the coming weeks and months.