Silver hit a one-month high on Monday, propelled higher by a broad-based rally in financial markets amid hopes that politicians can reach a compromise to avert the "fiscal cliff" in the United States.
Any improvement in the economic outlook should benefit the gray metal, which derives close to 40 percent of its demand from industrial users. Of course, silver also benefits from investment demand, which remains strong in this environment of extremely loose monetary conditions.
Indeed, silver exchange-traded fund holdings reached a record high of 606.2 million troy ounces last Thursday, finally surpassing the previous record set last spring, when prices briefly spiked above $50/oz.
The steady rise in ETF holdings is encouraging as it relates to the long-term silver outlook. Despite significant gyrations in prices, holdings haven't fluctuated nearly as much, suggesting that investors that buy these products are holding the metal for the long term and with conviction.
We see a similar pattern in gold ETFs, which also hit a record level in recent days above 83.7 million troy ounces.
In a recent interview with HardAssetsInvestor, Marcus Grubb, managing director of investment for the World Gold Council, explained that "It's quite rare that you get significant streams of redemptions in the ETFs. On a day-to-day basis, you will see redemptions. But overall, most quarters you see net additions to tonnage throughout the last eight years or so.
"The profile seems to be, even when the price corrects significantly in the gold market, that you don't get large redemptions. And when the price rises, you get significant new creations. So I think that these investors, generally speaking, are buy-and-hold investors."
Bottom Line: In our view, the basis for investing in gold and silver remains firmly in place. We continue to see the Federal Reserve's policy decision on Dec. 12 as the next big catalyst for the duo.
Gold ETF holdings rose by 0.3 million troy ounces, or 0.37 percent, to 83.7 million—a fresh record high. Silver holdings rose by 10.1 million troy ounces, or 1.71 percent, to 604 million, after reaching as high as 606.2 million last Thursday—also a record high. Platinum holdings rose by 2K, or 0.16 percent, to 1.5 million. Palladium holdings fell by 19K, or 1.02 percent, to 1.86 million.
The gold/silver ratio fell to 52.4; the gold/platinum was unchanged at 1.09; the gold/palladium fell to 2.69; and the platinum/palladium ratio fell to 2.47.
The U.S. dollar fell slightly to 80.95, while the EUR/USD rose to 1.28.
German and United States 10-year bond yields rebounded slightly last week. German yields were last trading at 1.42 percent, while the U.S. 10-year yield was last trading at 1.65 percent.
Against the German benchmark, yield spreads on PIIGS countries fell. Portuguese, Italian, Irish, Greek and Spanish yield spreads were last trading at 6.78 percent, 3.43 percent, 3.26 percent, 15.68 percent and 4.37 percent, respectively.
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