08-30-2010—The recent gold and silver rally has been fueled by several key components, including poor economic data globally, which is forcing savvier investors to choose the precious metals as a safer haven investment and an alternative to the instability of the fiat currencies and the global equity markets.
Historically, gold and silver have retained their value better than most commodities during times of crisis. The worldwide economic climate has caused investors to choose tangible investments such as gold, silver and diamonds.
The insatiable demand from the jewelers of India has helped the resiliency of the gold market as they have purchased more bullion this year (through August) than they purchased during the entire 2009 calendar year. This is truly amazing when you consider that India is the largest consumer of gold in the world.
A TIME OF CELEBRATION
The wedding and festival seasons begin Sept. 1 and extend through December and this results in the need for the jewelers of India to continuously restock their shelves. The citizens of India have increased their incomes significantly In the past few years and have used their new found wealth to purchase rings, necklaces and chains as a retail safe haven investment.
The brides of India use the yellow metal to adorn their attire in fabulous ornamentation which is usually made with 22 carat gold. Attendees at these wedding often give the bride and groom the traditional gift of gold.
DIWALI
The festival season usually peaks with the Diwali Festival. Diwali is one of the biggest festivals of the Hindus and is celebrated with great happiness and enthusiasm in India. Diwali, or “the festival of lights,” is never complete without the exchange of gifts with friends and family. The gift of choice is gold. The Diwali Festival falls on Nov. 5 this year.
The gold market, like most markets, is fueled by supply and demand and since we are heading into the wedding and festival season demand should remain high.
SILVER
Silver has also impressed and has become the safe haven of the blue collar investor. As of this writing, silver is trading over $19 an ounce and has the potential to outperform gold. Since silver enjoys a duo status as a precious metal as well as an industrial metal, demand for it is very high.
Silver is used to make batteries to solar panels as well as coins and bullion.
MORE ECONOMIC TROUBLES AHEAD
The precious metal markets have certainly remained resilient and if the economic data worldwide continues to disappoint, I expect this trend to continue. There is still much uncertainty in the European Union, Japan and the United States.
In the U.S., the biggest problem is the unemployment and housing sectors. There are more than 8 million unemployed Americans, not to mention the millions of Americans who are under-employed.
In addition, the U.S. is set to reach a record number of foreclosures this year. The economic recovery is not happening as quickly as hoped, and this has caused many investors to lose favor with the equity markets as well as confidence with our legislative stimulus plans.
All of the above are the reasons the gold market remains at record levels.