Analysts still don’t get the silver price link to monetary inflation
Posted on 20 October 2011 with 2 comments from readers
If you want to follow the smart money you only have to look at the Most Popular Stories listing on Bloomberg each day. Right this moment Silver Bear Market Seen Ending on Europe Crisis: Commodities is number four. Articles on silver are as rare as the metal itself and just as popular with investors these days.
Today’s piece is a ramble around the subject of silver prices with tid-bits from various commodity analysts. A straw poll of 11 analysts has the silver price next year averaging $38 and ending at $42, not a bad gain for the year – possibily once again the best performance of any commodity.
Mystery metal
Not surprising then that the investment community is following silver very closely. But the shiniest of metals is still something of a mystery, even to the analysts who follow it most closely.
The rationale for this price out-performance is pretty confused. Some talk about ‘weak fundamentals’ from likely industrial demand in a period of low global growth. Then there is ’support from economic growth in emerging countries’.
Nearest to the truth is an assertion that silver will continue to track the gold bull market and ‘leverage off of it’. Nowhere does anybody mention the electronic money printing across the world in the ongoing financial crisis and how that leverages precious metal prices among investors.
Perhaps it is just so obvious that analysts are missing what is right under their noses. Expand the supply of paper money and keep the supply of precious metals almost static and they will rise in price in terms of paper money.
And as more and more investors get it then there will be an increased demand for precious metals. That these highly-paid expert analysts have not yet understood this properly would tend to suggest an enormous upside remains for precious metal prices.
Silver is the more volatile of the two, precisely because it ‘leverages off’ the gold price. It also has the smaller investible supply of the two so the demand pull effect on the price is greater (click here).
Monetary inflation
As ArabianMoney has argued recently (click here) we expect the eurozone financial crisis to result in higher inflation whatever the outcome, and this will in turn lead to higher and higher demand for precious metals with silver prices gaining most.
We can see no alternative in a world awash with debt to debt destruction via inflation, although this will be combined with austerity and deflation as well, making it a particularly toxic combination. To rise above it investors will increasingly realize that gold and silver are the only solid investments in town.
Our conclusion is that there will be one last sell-off before silver races back above the $50 April-high and then much higher (click here).
2 Comments posted by readers:
I wonder whether using the word “currency” wherever possible to describe the fiat stuff and limiting “money” as much as possible to gold and silver might help the analysts understand.
So, “expand the supply of paper money…” would become “expand the supply of paper currency and keep the supply of precious metals’ money almost static and it will rise in price in terms of paper currency”.
Or, “nowhere does anybody mention the electronic currency printing across the world in the ongoing financial crisis and how that leverages precious metal money prices among investors”.
I do agree with your article, however, but when silly analysts and investors equate an almost worthless bit of paper, which is backed only by someone else’s debt, with money, they should go and learn something about the millennia-old gold and silver money.
Thursday Bernanke told politicians that more QE was possible. (I predicted QE3 a few months ago.) He does it before Christmas, and my 13,000 Dow guess may come true. But it looks like it will come next spring or summer.
Europe runs everything right now. A Greek default could wreck the system with credit default swaps and bank failures.
It will be interesting to see how long the European politicians can keep the euro alive. They will need to inflate a lot to do it. That should push silver up for a while.
Who would have thought that a German woman might hold the fate of the world in her hands? Europeans just can’t get away from taking orders from Germans. The austerity they will impose on their donor recipients will be brutal, and last for years.