Is Silver The New Magic Bullet for Investors?

May 4th, 2009

By Peter J. Cooper

Many investors have their eye and money on gold as the asset class to watch in the near future as global money printing has its inevitable effect on inflation, crashing bonds and hiking interest rates.

In this environment gold will soar as a money of almost fixed supply. It takes only a tiny shift of cash from bonds to gold to begin an enormous price spike for gold.

Investors can be forgiven for being a little skeptical after the recent modest price performance of gold, although even the anti-gold bugs concede that gold has been a good store of value through the early stages of the global economic crisis.
Future prospects

You really have to look forward, however, and think how major asset classes are likely to perform from here.

Do equities look a good bet with profits diving and real estate prices falling? Do bonds look attractive with governments planning huge issuance programs? And which currency will devalue next?

Gold offers protection against devaluation and an over supply of bonds as no government can print gold. Equity rallies in a bear market are temporary and easy to misjudge. Shorting stocks is also a matter of market timing which can be got wrong.

Besides you need to catch the next big thing to succeed in investment, not jump of previous bandwagons that might show some signs of new life.

Add all the global stimulus packages and bank rescues together and you have a massive requirement for governments to create money, either issuing bonds or printing money. That will happen, and that will create inflation, and that will mean a higher gold price.

It is just a matter of waiting patiently long-of-gold until it happens. But if you want to leverage your precious metals then there is a growing body of precious metal insiders that tip silver as the better option.
Silver bullet

The world’s stock of silver is one hundredth that of gold and the current price makes this metal arguably the most depressed commodity of all. It has never traded at even half its 1980 high, although it has recently come close to the average price for that year.

When the gold price lifts off then the silver price should take off by at least a factor of two, and the gold:silver ratio drop. This is also the historic pattern, with silver the better performing metal in a boom, albeit with higher volatility than gold. So if you are looking for a magic bullet to boost your portfolio, silver should be your asset class of choice.


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