Silver and gold: precious metals, price swings

by December 11, 2012

Silver and gold, silver and gold…It’s quite the refrain this season and not just in the venerable folk song about Christmas tree ornaments.

Chemistry Professor Martyn Poliakoff gets a rare peek into a Bank of England vault where £197 billion in gold bars is stored. Video: Brady Haran

And with consumers, small business and industry jittery over the “fiscal cliff” drumbeat and other fears for 2013, a look at how the metals market affects all of the above in your region might be a timely way to segue into the new year.  One thing I would do is talk with certified financial planners (find them via a ZIP code search at Certified Financial Planners Board) about how retirement savers and other middle-income investors might make use of precious metals funds available in their 401(k) and similar plans.  What is the maximum allocation to that type of fund they would advise?  If you can get your hands on the 401(k) offerings of major employers in your area and pinpoint specific funds, so much the better.  CFPs and other advisers might have those lists via their clients.

Gold, of course, has been a powerhouse for the past couple of years as investors seeking safe haven have driven up the per-ounce price to record levels around $1,800 an ounce; earlier this year one analyst predicted (correctly) a volatile 2012 with more upside for gold in 2013.  And even more audaciously, a September report from Bank of America Merrill Lynch predicted long-term prices as high as $5,000.

That forecast, while great for investors, must strike terror in the hearts of jewelry producers and merchants, who in recent years have been promoting lower-priced silver items, or non-metal, bead-based collectible jewelry items and costume jewelry as alternatives to pricey 14K-and-up gold baubles.  Amid gift-buying season, check in with Main Street jewelry stores and mall chains about what’s selling, what’s not and how they are compensating for high jewelry costs.  Ask about the tipping point:  at what gold price would they be unable to sustain business?

Has the gold-buying party popped back up?  And what about dealers in estate jewelry — are they reaping any benefit from the run-up, or are they worried that all of Aunt Edna’s irreplaceable vintage pieces are being melted down for profit?  Are pawn shops lending more on gold jewelry these days?
For an interesting look at the power and longevity of gold, watch the video inside this story in the Telegraph: Inside the Bank of England’s gold bullion vault. Chemistry Professor Martyn Poliakoff and video journalist Brady Haran get a very rare peek into a Bank of England vault where £197 billion in gold bars is stored.

Now, silver is gaining favor with investors, and this (PDF) Thomson Reuters GFMS report says global economic worries may drive silver from its current price in the low $30 range to well over $50 an ounce.

Interestingly, demand for silver as a raw material is fading in sectors other than jewelry, including silverware, coins and medals, industrial production and photography (makes sense as digital image sharing takes over where hard copy prints once reined; silver is an ingredient in the emulsion that, in a nutshell, makes an image on paper.)  Again, check with jewelers, dealers, sellers of household flatware and makers of commemorative items like pens and medals about trends in silver prices and consumption, and what alternatives may eclipse silver if prices shoot up.

Copper is a metal to watch in 2013 as a continued housing recovery will boost demand for wiring and other building components.  Meanwhile, check in with realtors, law enforcement and banks about how copper theft is affecting foreclosures and other unoccupied properties in your area.

Steel, on the other hand, faces a glut according to the Wall Street Journal, which may be good news for car makers and other large buyers; check with fabricators in your area about the cost of their steel inputs.  On the plus side, the lowly metal apparently  is trumping plastic now for gift-card cachet; according to this Yahoo! Finance report, Starbucks is issuing a steel card (reminiscent of the metal department-store charga-plates of yore) for a whopping $450; $400 is store credit but the base $50 tab is for the cost of the card.  Only 5,000 will be issued, the report says, noting that the exclusive plates likely will become collectors’ items like their ancestors already have.

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