Barefoot Investor: Gold, Silver Prices Diverge on Debt, Global Outlook

Gold and silver prices were diverging Tuesday as gold futures rose on European debt fears and silver's industrial-appeal wavered.

Silver prices were down 25 cents to $35.44 an ounce. The U.S. dollar index was adding 0.07% at $75.97 and the euro was sinking 0.37% against the dollar.

Gold and silver were caught between opposing forces Tuesday. Gold was still a safe haven asset of choice along with the U.S. dollar and U.S. bonds, but gains were relatively muted as some investors opted for profits and others stayed out of the market altogether.

Mihir Dange, co-founder of Arbitrage, says he is flat right now and is sideways bullish on the gold market. "We're still waiting on a lot of events," says Dange referring to Washington's failed attempt over the weekend to resolve the debt ceiling as well as Europe's inability to help Greece or prevent contagion. These events "could push the market one way or another," says Dange. "It will probably be choppy between $1,560 and $1,575 and look for a breakout above $1,577" an ounce, the metals intra-day record.

Dange isn't concerned that gold prices haven't hit new records given the spate of negative headlines pounding markets, but says the fact that gold has held up while other assets saw mass liquidation is very bullish.
Silver, on the other hand, typically a go-to metal like gold, has been suffering from the industrial metal blues. As investors worry about a global slowdown, flat or negative demand from Europe and the U.S., and credit tightening in emerging market countries -- typically voracious consumers of industrial metals -- silver has become less appealing.

"Silver has always worn these many hats," says Anthony Neglia, president of Tower Trading. Neglia believes silver's association as an industrial metal typically trumps any association as a safe-haven asset. "[Silver is] struggling, it had a difficult time staying above $37." Neglia is zeroing in on the $33 an ounce level as a major support area where he thinks companies could be swayed to buy the metal at "discount" prices for industrial uses.

Worries about silver reverberated throughout the market, particularly after China raised rates last week, the third time this year. The higher the rates are, the less money companies can borrow, and the more likely spending will slow.

However, data released today showed that new loan growth in China grew 3.3% year-over-year in June and Alcoa(AA_)'s CEO, Klaus Kleinfeld in the company's latest earnings report, indicated that China would grow 5%-8% in 2011. This figure is significantly lower than its 9.7% growth rate in the first quarter, and the 10.3% for 2010, but still reflects growth.

Neglia also says that safe haven buyers were burned during silver's parabolic rise during March and April, which might make them more hesitant to jump back into the metal. "It did some damage and I think people are scared to get in at these levels." Neglia himself is on the sidelines right now and will be looking to buy at around $33 if silver can get to that level and hold it. "I'm a little nervous right here."

Gold mining stocks were modestly higher. Barrick Gold(ABX_) was up 0.94% to $46.31 while Newmont Mining(NEM_) was up 0.79% at $54.68. Other gold stocks, Goldcorp(GG_) and AngloGold Ashanti(AU_)were trading at $50.93 and $42.20, respectively.(thestreet)


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