By Dominique de Kevelioc de Bailleul
“We’re trend ready, Eric. I think it’s a prescient time to come on the show,” Hinde Capital CEO Ben Davies begins his interview with King World News (KWN), referring to a resumption of the upward trend in the gold market. But, where gold goes, silver follows at a ‘double-time’ pace—at least.
Davies proprietary model for pricing silver suggests to him a move higher of 25 percent, citing reasons of a slight upturn in the U.S. economy, the return of easy-credit European politicians from vacation, and, possibly, truth in the rumor that Spain will ask the ECB for a bailout during the weekend, ending Aug. 19.
On the news of a Spanish capitulation, alone, silver prices could move higher this week, according to Davies.
Though Davies doesn’t expound upon his ‘odd’ thesis of U.S. growth next year, or even suggest where that growth will come from, he does expect, however, more monetary accommodation by central banks to buoy silver prices—an expectation echoed by currency and monetary policy expect Jim Rickards, who, so far, has been on the money with his prediction of ECB easing ahead of the Fed. Now, it’s the Fed’s turn, according to Rickards.
Incidentally, Rickards anticipates Fed Chairman Ben Bernanke to announce further QE at the annual central bankers meeting at Jackson Hole, Wyoming in early September. He tweeted, Sunday, that recent weakness in the Chinese renminbi against the dollar weighs more heavily with the Fed than U.S. jobs and GDP, and that downdraft in the Chinese currency, beginning from the first days of May, will push Bernanke to make the long-awaited QE announcement at Jackson Hole.
Moreover, it turns out the rumor that Spain would ask for a bailout, that Davies alludes to, is fact-based, in part. The Wall Street Journal reports, Sunday, Spain’s Finance Minister Luis de Guindos “would like to see the European Central Bank commit to massive, open-ended sovereign-debt purchases” before Spain asks for a new bailout from the central bank—a request that former Goldman Sachs operative Mario Draghi would only be too happy to accommodate.
However, Spain and the other nations which make up the PIIGS will await Germany’s high-court ruling on whether an exception to Germany’s constitution will be granted on behalf of the ECB and its sovereign debt purchases. That critical ruling is scheduled for Sept. 12.
Back to Davies.
When asked by KWN host Eric King about the short-term prospects for the silver price, Davies didn’t hang his hat on the central-banker-easing mantra as the primary reason for his anticipation of higher silver prices. Instead, Davies emphasizes a disconnect between elevated equities prices and depressed silver prices as his reasoning for silver to play catch up.
He also suggests that U.S. economic growth will add to the several known catalysts to a substantial move higher in the silver price, a shocking departure from the 2013 Armageddon scenario advanced by Jim Rogers, Marc Faber, Peter Schiff and a legion of well-informed, talented and ‘unencumbered’ market handicappers, including, too, economist John Williams of ShadowStats, who would take grand exception to Davies’ U.S. economic forecast.
Flying in the face of Davies’ forecast of economic growth comes an American Petroleum Institute (API) article which reports global fuel deliveries for all products dropping through the floor—not a good sign.
Demand for gasoline, the most widely used petroleum product, dropped 3.8% from a year earlier, to 8.624 million barrels a day, the lowest July level since 1997. Gasoline use in the heart of the peak summer driving season was 2.2% lower than in June. January-July gasoline demand averaged 1.1% below a year earlier, at 8.671 million barrels a day, the API said.
Kerosine-based jet fuel use fell 0.8% in July from a year ago, to 1.455 million barrels a day, while demand for heavy residual fuel, used in power plants and industrial burners, dropped 7.1% year-on-year, to 294,000 barrels a day.
Production of all four major products–gasoline, distillate, jet fuel and residual fuel–was greater than demand for those products. As a result, petroleum imports decreased and exports increased. Total imports of crude and refined products fell by 9.6% to average 10.4 million barrels a day in July. Exports of refined products increased 11.1% to a record high for July of 3.244 million barrels a day, and year-to-date exports were up 14% compared with the same period in 2011.
Refineries operated at 92.7% of capacity in July, the second month in a row above 90%.
Crude oil production rose 13.6% year on year in July to 6.225 million barrels a day, the highest July level since 1998. Year-to-date output averaged near the July level and was up 11.9% from the same period in 2011.
Nonetheless, Davies likes silver, in the short-term.
“Silver is the ugly duckling at the moment. Isn’t it? It’s definitely performing very badly, and I think it’s tantamount to the same as gold,” says Davies. “But I think I would err slightly on the side of more silver bullish.
“I think that with recent equity and S&P 500 performance, I think that the strong correlation there and optimism for growth, and, actually, our analysis is actually [sic] for a pick-up in U.S. growth in nine months time. So the overlay there, for us, is that silver could perform well here.”
Davies’ timing for a move high in the silver price pretty much sacks up with Goldmoney’s James Turk and other frequent guests of KWN. It’s a breakout any day in both gold and silver, they say, with silver expected to catapult quickly and close the 57-to-one ratio of the two metals.
“I think we’re threatening to make a move here and it could come in the next few weeks if not sooner,” proffers Davies.
“Optically [chart], I’m looking for the low-to-mid-30′s, and that is as far as our trend system will take us in the interim—in the short term, I should say.”
His target for gold of $1750 and silver of $33-$35 equates to a gold:silver ratio of between 50 and 53.