Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
The Ultimate Demise Of The Euro Union - 1st Sep 14
Palladium Price Breaks Multi-Year High Over $900 - 1st Sep 14
When Complexity Becomes Chaos - 1st Sep 14
Designer War By Default - 1st Sep 14
Islamic State or Russia? Ten Key Questions Towards Pragmatism - 1st Sep 14
Mixed Emotions for the Gold Market - 1st Sep 14
These Clowns Are Dragging Us Into War with Russia - 1st Sep 14
Marx And The Capitalist Cancer Of Overproduction - 1st Sep 14
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Gold and Silver Bubble?

Commodities / Gold and Silver 2010 Jul 22, 2010 - 02:46 PM GMT

By: John_Browne

Commodities

In the first few days of July, the prices of gold and silver appeared to break a five-month upward trend by drawing back about five per cent from the record June peaks. Despite many similar corrections that have occurred frequently during the long bull market in precious metals, pundits nevertheless looked to draw bold and significant conclusions from the drop. But just as investors were getting comfortable with the leading explanation - that a looming double dip recession will prevent inflation and thereby dampen demand for precious metals - the markets for both metals stabilized.


Most investors still credit the accepted orthodoxy that metals will only gain if inflation is widespread or a financial crisis encourages investors to seek safe havens. The failure of both metals to break below their upward trend lines, despite the lack of news on both fronts, should lay to rest these canards. Unfortunately, nothing appears more resilient than the belief in a gold bubble.

In my opinion, the current rise of precious metals is the direct result of the evident profligacy of governments the world over. Spendthrift politicians in Washington, London, and Tokyo, have caused people to lose faith in paper currencies. Investors, as well as an increasing number of lay citizens, understand that debts cannot be accumulated forever and that the most tempting solution will be to simply print more currency. The only alternative is an unpalatable tax hike that will only serve to reduce long-term revenue, as explained by the famed Laffer Curve.

This conflict will remain whether or not the CPI is currently spiking, and whether or not appetite for risk returns to the marketplace. So, until the political currents change or we face sovereign catastrophe, I believe gold and silver will be in a sustainable secular (long-term) bull market - not a bubble.

With the long term trend line of gold and silver still intact, but with current prices below their recent highs, many investors may be sensing buying opportunities. If so, which metal looks more attractive?

The price of gold and silver are typically influenced by several factors that do not affect prices for conventional commodities.

Gold holds the status of being the world's ultimate store of value. Neither governments nor wealthy individuals seem to be able to sleep soundly without some cache of the yellow metal. Gold is less used in the industry and its price less easily manipulated. Therefore, the big players in the precious metals markets, especially central banks, tend to invest portions of their vast holdings into gold.

Silver is generally the province of smaller investors. It is more accessible on a price-per-ounce basis, akin to the B-shares of Berkshire Hathaway. Silver has many industrial uses, giving it exposure to the commodity and monetary markets. This means the silver price tends to be more volatile and relatively less favored as a safe haven by the big players.

During the financial panic of 2008, the fortunes of gold and silver parted drastically. In that calendar year, when nearly every asset class fell dramatically, gold lost only 29% of its value from peak to trough. Silver, on the other hand, fell much harder - down 57%. But silver has bounced back harder. Since the trough, the price of silver is up 97%, as compared to 66% for gold. What's more, the price of silver is still below its 2008 high, while gold has been continually setting new records on a daily basis. Based on these technicals, it is likely that many investors may perceive value in silver.

Generally, the rule of thumb is that gold offers relative stability and silver offers greater upside (and downside). Therefore, the amount of additional risk an investor is willing to take will determine the gold/silver ratio in his portfolio. The other aspect is the ratio between physical metals and metal mining companies. The former are historically relatively safer, but don't generate revenues like owning stock in a miner can. Again, the allocation to each would be up to the individual investor. Each alternative represents a different way to access what I have argued is a secular bull market in precious metals.

I believe that more and more observers will recognize the nascent sovereign debt crisis as merely the precursor to a currency collapse. If I am correct, then investors will likely continue to pour into assets with intrinsic value, including precious metals. From my vantage point, the choice between gold and silver is of secondary concern. Investors should be more wary of clinging irrationally to an anachronistic US dollar regime.

New Special Report: Peter Schiff's Five Favorite Gold & Silver Mining Stocks. Click here to download.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014