Silver less volatile the gold over the past three months

Silver is consolidating its stellar gains over the past year and has been more stable than gold in price for the past three months.

This is unusual but perhaps not so surprising after the sudden correction of silver in April from a brief $50 all-time high, a smidgeon above its 1980 level 31 years ago. But silver has been unusually stable since its correction from that peak and looks to be building a base to re-try that level very soon:

Gold, on the other hand, made a spectacular leap from below $1,550 to a new all-time high of $1,923 at the start of this week before correcting again:

Of course, it looks very dramatic on the three-month chart, less so on a longer time-frame, although gold is clearly oversold as this chart from the respected Golden Jackass website shows:

We think silver investors who wondered about the sustainability of $40 an ounce silver should take heart, and be less worried about an imminent pull-down with the stockmarket in a repeat of 2008. The demand for physical silver is very high as the Gold Souks of Dubai report (see this video link).

Indeed, perhaps fears of a repeat of the 2008 collapse of precious metal prices are very wide of the mark. We have just seen the Swiss franc pegged to the euro which just has to be gold positive after the initial intervention and manipulation by the central bank.

One of gold’s main competitors as a safe haven currency has just gone as the Swiss franc will now be the euro in disguise and be forced to track its monetary policies however misguided and inappropriate for this over-banked country.

Arabian dilemma

Arabian depositors must already be wondering what to do with their Swiss bank accounts now that they have a money that can devalue with the same abandon as the euro, as it will have to do in the upcoming eurozone banking crisis. Gold and silver deposits are a much better option now.

At the same time Portuguese euro bonds are being sold and the money reinvested in gold and silver. The same flight of capital from the bonds of the other PIIGS has been noted in recent months, and it takes little imagination to see this getting very much worse before it gets better.

All that money cannot go into dollars and US treasuries. Dollar-denominated gold and silver are a logical alternative and are rising in value much faster than inflation. The same cannot be said of US treasuries which also carry the risk of a bond market collapse in the future.

In this environment a short-term downward blip in the gold price, like the $200 fall a little over a week ago, is possible but equally the rebounds will be swift as we saw this week. And in the meantime silver is proving strangely less volatile than gold rather than vice-versa.