Gold May Pan Out, Silver Doubtful

Chidem Kurdas

There probably was a mini bubble in silver, by far the highest returning commodity of the past year. A bubble has been suspected in gold, too.  George Soros’s funds reduced gold exposure—as we at HedgeFundSmarts were the first to report, back in March.  But many hedge funds continue to hold precious metals companies or ETFs.

Larry Kantor, managing director and head of research at Barclays Capital, makes a key point about these markets. There is so much sentiment involved in precious metals that prices can’t be understood in terms of supply and demand, he says. Recently the price of gold went up apparently because of the metal’s role as safe haven  amid  Middle Eastern political turmoil and the European debt crisis.

Gold will struggle to go higher, according to Francisco Blanch, head of global commodities at Bank of America Merrill Lynch Global Research. He looks at the link to real interest rates. For gold to go higher, the Federal Reserve would have to institute QE3, he said at a press conference. He does not see another round of quantitative easing in the cards under current economic conditions.

Mr. Kantor focuses on the relationship with the US dollar, which he expects will weaken later this year. If that happens, gold will ride high again.

As for silver, money has been moving out of exchange-traded vehicles. With that trend in place, the immediate outlook is weak.

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