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LATEST NEWS ABOUT SILVER PRICES AND MARKETS

Monday, May 14, 2012

The Yuan, Rupee and Physical Silver Demand :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

The Yuan, Rupee and Physical Silver Demand :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

www.TheSilverPrice.info


China and India together account for a considerable amount of the current demand for physical silver. Each emerging market country has a strong base of support for silver from individual investors, who often purchase the physical metal as jewelry and bullion since it is thought to provide a more reliable store of value than the local currency. 
Each country also uses silver in various manufacturing processes that result in products intended for export to more developed countries. An especially notable growth of silver use has occurred in China lately as Chinese solar cell manufacturing has expanded tremendously in recent years.  This and other factors have resulted in China shifting from being a major exporter of silver to being a net importer of the precious metal instead.
Furthermore, the currencies of both of these huge countries have foreign exchange rates that are managed quite actively by their respective central banks. If these exchange rates were allowed to float more freely against the U.S. Dollar, what effect would such a policy shift have on the demand for physical silver in those countries?
The Chinese Yuan
The Chinese Yuan is the official unit of account of the Renminbi, the official legal tender in the People’s Republic of China.  The Yuan’s value relative to the U.S. Dollar has been actively managed on the foreign exchange market by the People’s Bank of China for many years.
The PBOC’s currency management policy has typically taken the form of an outright peg, such as during the ten year period from 1995 to 2005 when the Renminbi traded in a tight 8.44 to 8.07 range versus the U.S. Dollar.  This high exchange rate was thought to be beneficial for developing China’s manufacturing export businesses.
Nevertheless, the Renminbi has been allowed to float more freely since then, with its value strengthening to its current level of 6.3235. The managed float partly came about due to criticism and growing pressure from U.S. officials about the persistent undervaluation of the Chinese currency contributing to a large trade deficit between the United States and China.
Most analysts would agree that even this lower exchange rate considerably undervalues the Renminbi on a Purchasing Power Parity (PPP) basis, making goods substantially cheaper to purchase in China than in the United States. For example, the International Comparison Program estimates that the USD/CNY exchange rate on a PPP basis is only 3.45 Yuan per U.S. Dollar.  
If the Renminbi were permitted by the PBOC to appreciate to achieve its PPP value, then silver would very likely be even cheaper in Chinese currency terms than it is now, thereby prompting even greater demand for the precious metal among the massive Chinese population.
The Indian Rupee
The Rupee is India’s official currency, and it has a market determined exchange rate versus the U.S. Dollar. Nevertheless, its value is actively managed by the Reserve Bank of India to prevent excessive exchange rate volatility.
The Rupee has been trending lower since forming a base at 7.72 in the early 1980’s, which has been a key factor behind persistent physical silver purchases by individuals based in India. 
Another contributing factor is the consistently high inflation rate in India, which is running at almost 7 percent per year by recent estimates.  The RBI also cut its benchmark interest rates by a greater than expected 0.5 percent in April, further undermining investor interest in Rupee denominated assets.
The Indian currency also just hit an all-time low versus the U.S. Dollar of 53.83 on May 9th before the RBI stepped in to prohibit those exporting goods out of India from retaining 50 percent of their foreign exchange earnings.  The Rupee recovered substantially on that news, which was expected to result in an extra supply of $3 billion that would need to be sold for Rupees.
Nevertheless, the International Comparison Program estimates that the USD/INR exchange rate on a Purchasing Power Parity (PPP) basis is only 14.67 Rupees per U.S. Dollar.   If India allowed the Rupee to appreciate substantially toward its PPP value, the price of physical silver would become much cheaper in local terms, also spurring already buoyant local demand for the hard currency.

Bull Market ‘Not Over’ but Speculators Turn Bearish | Resource Investor

Bull Market ‘Not Over’ but Speculators Turn Bearish | Resource Investor

www.TheSilverPrice.info


The price of gold and gold futures dropped yet again Monday morning, recording the seventh drop in nine trading days in May so far as industrial commodities, global stock markets and the euro currency all sank amid Athens' failure to negotiate a new coalition government.
Silver bullion also fell hard, touching $28.44 per ounce and losing 8.9% from the start of this month.
The price of Spanish government debt today fell yet again, pushing 10-year yields above 6.2% ahead of an auction of new bonds later today.
Greek public-sector salaries and state pensions may be unpayable "from the beginning of June" says a letter from stand-in prime minister Lukas Papadimos to party leaders, republished by Ta Nea, after May's tranche of the international bail-out was cut and tax revenues came in below target.
"We do not think the gold bull market is over," says a note from Morgan Stanley analysts, even though "gold has moved lower and is trading at levels not seen since December 2011."
Viewed on a technical chart analysis, "Damage has certainly been done [but] we do not think it is irreversible," they add, pointing to a sharp rise in speculative "short selling" by gold futures traders now expecting prices to fall further.
"The last time positioning was at these levels, prices embarked on a move higher, rallying to near $1800 per ounce. We are buyers of gold here."
The rise in speculative short-selling of gold futures is "disconcerting" however, says Marc Ground at Standard Bank, because "while investors have over the past few weeks appeared cautious of running too short on gold, this fear seems to have evaporated."
Over in the currency markets – where the euro fell to new 4-month lows vs. the dollar at $1.2860 – "We continue to target $1.20 for euro/dollar," says Ground's colleague, currency strategist Steve Barrow.
"Whether this takes time, or comes in an instant, could depend on the outcome of Greece’s political impasse."
Energy, metal and food prices all sank once more Monday morning as European stock markets lost more than 2% of their value, with Madrid losing 3% and Athens dropping 5.3%.
At the weekend Swedish central banker Per Jansson said that "of course the question [of a Greek exit] is discussed." Irish central bank chief, and fellow European Central Bank policymaker Patrick Honohan told journalists that "technically, it can be managed."
"We wish it to be possible for Greece to remain in the euro but Greece must live up to its commitments," a spokeswoman for the European Commission said Monday morning.

Major Bottom In Precious Metals Could Occur This Week | Commodities And Options | Minyanville.com

Major Bottom In Precious Metals Could Occur This Week | Commodities And Options | Minyanville.com

www.TheSilverPrice.info

Normally catching a bottom is not difficult. Bottoms tend to occur instantly while market tops form during a process. Yet, I’ve found that bottoms of long-term significance do not occur instantly. Like tops, they take time to develop. For example, think about late 2008 to early 2009. Commodities hit their price low in December but the bottoming process began in October and wasn’t complete until May. Emerging markets hit their low in November but the process began in October and ended in March.

Returning to the present, we see that gold and silver look set to retest their late December lows. My firm's work leads us to argue that the metals will successfully retest their lows and soon emerge from what in the future will be considered a major bottom in line with 2008, 2005, and 2001.
 
We begin with a daily chart of gold which shows its daily closing prices and a volatility indicator. The percentage figure refers to the percent bullish reading from the daily sentiment index. As we noted recently, each bottom in god (except 2008) has come during a period of low and declining volatility. Volatility is currently at a nine-month low while only 7% of traders are bullish on gold.
 

 
Next, let’s take a look at the current Commitment of Traders Report for gold, which shows the commercial short position and open interest at the bottom. The current commercial short position has reached a three-year low while open interest recently touched a two and a half year low.
 

 
Moving to Silver, we see the metal is nearing significant support at $27. Silver closed at $28.93 and has a bit of room to fall before testing $27 and the 600-day moving average, which has been an important pivot point since late 2008. The current daily sentiment index is 16%. We think, with another day or two of weakness in silver, the daily sentiment index would decline to single digits. We also want to note that $26 is the 50% retracement of the entire bull market.
 

 
Silver, unlike gold, has seen more interest recently as open interest has increased since late last year. However, open interest would have to rise 40% to reach the old high. Commercial traders are net short 17.9K contracts, which is within a whisker of the 10-year low, which was reached at the end of last December. 
 

 
We remain encouraged that a bottom is developing in the mining equities. Below we show a weekly chart of Market Vectors Gold Miners ETF (GDX). Last week GDX bounced from $41, which is the 50% retracement from the 2008 low to 2011 high. Forty-one dollars also marks the strongest pivot point since $52. Furthermore, GDX’s volume was very close to a three-year high. Note how strong volume has market past bottoms.

Read more: http://www.minyanville.com/trading-and-investing/commodities-and-options/articles/precious-metals-market-bottom-market-top/5/14/2012/id/40976#ixzz1urPc1G2b

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