Inflation Risks Rise As Silver And Gold Make New Highs
By David Pappas, Archer Financial Services
Silver and gold futures increased in price, as a direct result of ongoing geopolitical problems, including Portugal's financial distress, to uprisings in the Middle East and North Africa. Portugal is the third euro zone nation to request a bailout. Many analysts believe that Portugal will receive short-term financing. A financial assistance package could total as much as 75 billion euros, according to some private estimates. It is extremely important that they have a new government in place that will address the problem very quickly. These events are causing investors to seek safety in more stable assets, such as precious metals.
It is not only the geopolitical influence that is taking prices higher. In addition, there is the increasing global Inflation risk that has picked up in most major economies due to rising commodity prices. This presents central banks with the dilemma of whether or not to raise interest rates in an effort to tame inflation or to leave rates low in order to stimulate economic growth. The European Central Bank and the U.S. Federal Reserve have worked together in the past, but they now seem to be developing different monetary policies. As expected, the European Central Bank increased their benchmark interest rate by 25 basis points to 1.25% on Thursday. This is the first increase in interest rates from the ECB in almost three years. In the euro zone, inflation has been overshooting the ECB's target, set at close to, but below 2%. Today's tighter credit from the ECB is the first time in 40 years that interest rates in Europe were increased before a corresponding increase the fed funds rate from the Federal Reserve.
Federal Reserve Chairman Ben Bernanke, on Tuesday, played down inflation threats to the economy, saying the rise in prices of oil, grains and other global commodities would likely be temporary and would not translate into a broader inflation problem. Bernanke said he is not concerned about inflation because the country is still facing a significant unemployment challenge.
Financial futures markets are currently predicting a 46% probability that the FOMC will increase their fed funds target rate by 25 basis points at their December 13, 2011 meeting.
Take a look at these charts. You see silver and gold making all-time highs, as global fears push investors into precious metals. Silver and gold have historically enjoyed a safe haven status. As you can see, silver is making a run toward $40 an oz. The current high in silver is $39.78. Gold is at all-time highs, trading at $1,463 an oz.
Chart provided by Barchart via www.admis.com
Metals used for manufacturing have increased in price on expectations that demand may rise from Japan, as it rebuilds from the March earthquake and tsunami. Silver and gold are not the only metals that are getting attention. Copper is trading around $4.4285 a pound and has had an impressive move from $2.7000 in June of 2010 to new highs at $4.6575 a pound in Feb. 2011.
Chart provided by Barchart via www.admis.com
Investors are nervous about how these global events will play out. Precious metals are known to be safe havens when uncertainty in markets arises.
I am currently working on options strategies, designed to take advantage of likely higher prices for silver and gold markets. Please feel free to give me a call at 877-872-3348 or send me an email to david.pappas@archerfinancials.com.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.
