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Analysts still don’t get the silver price link to monetary inflation

By: Peter Cooper

-- Posted 20 October, 2011 | | Discuss This Article - Comments:

If you want to follow the smart money you only have to look at the Most Popular Stories listing on Bloomberg each day. Right this moment Silver Bear Market Seen Ending on Europe Crisis: Commodities is number four. Articles on silver are as rare as the metal itself and just as popular with investors these days.

Today’s piece is a ramble around the subject of silver prices with tid-bits from various commodity analysts. A straw poll of 11 analysts has the silver price next year averaging $38 and ending at $42, not a bad gain for the year – possibily once again the best performance of any commodity.

Mystery metal

Not surprising then that the investment community is following silver very closely. But the shiniest of metals is still something of a mystery, even to the analysts who follow it most closely.

The rationale for this price out-performance is pretty confused. Some talk about ‘weak fundamentals’ from likely industrial demand in a period of low global growth. Then there is ’support from economic growth in emerging countries’.

Nearest to the truth is an assertion that silver will continue to track the gold bull market and ‘leverage off of it’. Nowhere does anybody mention the electronic money printing across the world in the ongoing financial crisis and how that leverages precious metal prices among investors.

Perhaps it is just so obvious that analysts are missing what is right under their noses. Expand the supply of paper money and keep the supply of precious metals almost static and they will rise in price in terms of paper money.

And as more and more investors get it then there will be an increased demand for precious metals. That these highly-paid expert analysts have not yet understood this properly would tend to suggest an enormous upside remains for precious metal prices.

Silver is the more volatile of the two, precisely because it ‘leverages off’ the gold price. It also has the smaller investible supply of the two so the demand pull effect on the price is greater (click here).

Monetary inflation

As ArabianMoney has argued recently (click here) we expect the eurozone financial crisis to result in higher inflation whatever the outcome, and this will in turn lead to higher and higher demand for precious metals with silver prices gaining most.

We can see no alternative in a world awash with debt to debt destruction via inflation, although this will be combined with austerity and deflation as well, making it a particularly toxic combination. To rise above it investors will increasingly realize that gold and silver are the only solid investments in town.

Our conclusion is that there will be one last sell-off before silver races back above the $50 April-high and then much higher (click here).

-- Posted 20 October, 2011 | | Discuss This Article - Comments:

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