Arabian investors have more faith in gold and silver than local stocks

Yesterday local Arabian stock markets sold off and overnight gold and silver prices rose sharply as investors appear to have concluded that after QE2, and more Fed money printing to come, precious metals are the no-brainer investment.

There could still be pull backs in precious metal prices, particularly if global markets continue to sell off as they did yesterday. As ArabianMoney forecast last week QE2 to some extent means that all the good news is now reflected in equity prices and there is a question mark over what might take them higher, or whether the Fed will want to drive them higher.

G20 dilemma

Certainly the G20 meeting of governments later this week will focus attention on currencies and precious metals which are increasingly being treated as currencies without a government to manipulate them.

The goldseek.com website today points out that 15 governments will have to raise a total of $10.2 trillion next year in debt, equivalent to a thumping 27 per cent of their combined GDP. This is highly inflationary as raising debt creates new money and more money in circulation is by definition inflation.

How can gold and silver fail to go up in this environment? Whatever the debate might be about week-to-week fluctuations – and there was no sign of the sell-off in precious metals with stocks yesterday – the overall direction is up.

Gold super-bug Jim Sinclair’s $1,650 forecast for the end of January 2011 looks easily attainable, though how he managed to make that prediction eight years ago when gold was nearer $250 an ounce is a source of wonder and amazement.

$5,000 gold, $320 silver?

ArabianMoney is among those 65 forecasters currently tipping $5,000 an ounce in the future, and we have added $320 an ounce silver (see this article). It is far from being too late to join this investment party, although whenever we say that prices tend to reverse for a short period, before going much higher again.

Local stocks are falling on weaker than expected third quarter results. With the local markets concentrated into finance, construction and real estate, particularly in the UAE, this is understandable as the recovery so far is mainly in other sectors like Emirates Airline and hotels that are not quoted companies.

But if inflation continues next year oil will also benefit alongside gold and silver, and that is the cash flow of the region, and this rising tide will eventually raise all boats. Buying Arabian equities before that happens would also seem a no-brainer.