Now gold and silver rise with the latest stock sell-off
Posted on 08 June 2010 with no comments from readers
The price of both gold and silver jumped in unison late yesterday as US stocks took another tumble, leaving the S&P 500 just clinging above its 1,050 support level and the Dow Jones 115 points lower at 9,816, staying below the 10,000 mark.
The euro could not be blamed for the fall in US stocks this time as the currency gained on news of a 29 per cent surge in German manufacturing orders, albeit balanced by the 20 per cent devaluation of the euro that kept the real increase more modest against a very bad month last year.
Double dip risk
Investors on Wall Street are increasingly worried that the promised rapid economic recovery will not be forthcoming, and indeed the risk of a double dip remains. Fed chairman Ben Bernanke dismissed that possibility yesterday but then he has been wrong in his advice to investors so many times before. Doing the opposite of what he says is usually a money maker.
That leaves investors unsure where to park their cash except the US dollar. The problem is that the dollar is a flawed currency with its huge debt mountain that will one day have to be settled, either by austerity or inflation.
The prospect of inflation, however distant, makes precious metals with their fixed supply attractive to investors. Yesterday the scare about silver not keeping up with gold proved unfounded and both metals jumped in unison:
Last Friday silver fell and gold rose on a bigger stock market sell-off. The explanation is that silver is treated as an industrial metal and so is sold down on stock market weakness, while gold is a safe haven precious metal.
Industrial commodities
Yesterday that did not happen and we can only speculate why. The truth must be that silver is being pulled in two directions, although the German manufacturing data was undoubtedly a plus for industrial metals that was missing late last week.
That would leave the warning from Clive Maund about the silver price chart topping out as a valid one. However, it could be different this time.
But then leopards do not change their spots either, and silver has a long history of horrible volatility. In the past two years there has been a 50 per cent fall and rise again. Who is to say that the same will not happen again?
