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Silver outperforms gold again in the flight to safe havens

By: Peter Cooper

-- Posted 4 August, 2011 | | Discuss This Article - Comments:

Reading the headlines about a new all-time high for gold north of $1,675 and you could be forgiven for thinking that gold was the star performer amongst the precious metals over the past month.

Wrong! Step forward the shiniest of metals to take a bow at $42 an ounce this morning. In the past month silver is up from $34 an ounce, a 19 per cent gain, while gold is up from $1,480, an 11 per cent increase.

Silver wins again

So silver has outperformed gold by about 60 per cent, not quite its more usual pattern of delivering twice the gain of gold in an uptrend but nonetheless very significant.

When silver took its big tumble in April from nearly $50 an ounce back to $33 some analysts reckoned that silver had lost its pep, and that gold would lead the next advance in precious metal prices. Well that has simply not happened.

Readers of ArabianMoney will not be so surprised. We doubted the chartists would be right with gloom and doom about $25 silver mid-summer (click here) and feel that a ‘buy and hold’ approach to the most volatile of precious metals is once again vindicated.

Could silver one day be worth more than gold? We have examined this thesis before (click here). But in truth if you extrapolate silver’s outperformance that it is inevitable if precious metals continue to boom. The math is simple.

That said we always paint a very large volatility warning over silver. It is not that you will not make your fortune. It is just that you might not sleep in the process with the wild swings in price if you have all your money in this asset!

However, those feeling really down at the moment will be the investors who thought they could wait for the normally low months of July and August to buy gold and silver at depressed prices.

$2,000 gold ?$ silver

Perhaps they should just wake-up and buy anyway. For if gold is going to $2,000 this year as more and more professional analysts now think likely (and $1,675 is not so far off that figure is it?) then goodness knows where silver will end up.

ArabianMoney recently put silver at $50 this autumn and $60 an ounce by the end of the year. That is now looking a bit on the low side if gold overshoots the $2,000 target.

The downside risk is a major financial market crash this autumn, perhaps with a low in late October. That downshift would be bad for precious metals too, and that might be the July/August low that we have just missed happening.

On the other hand, do you want to risk missing out on the next leg of the precious metals rally by waiting again? We have just seen precious metals rally in a falling stock market and that was not what happened in the fall of 2008.

Besides if the Fed announces another QE program then the stock market will go up and precious metals will jump to the moon…

-- Posted 4 August, 2011 | | Discuss This Article - Comments:

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