Silver still a runaway winner from the coming economic mayhem

Posted on 06 November 2011 with 9 comments from readers

If you could only invest in one asset class to hold until the next big bubble is fully inflated then it has to be silver. Gold is already increasingly popular for the same reason.

It is a precious metal of fixed supply and proven monetary value in a world of electronic money creation. Just look at the staggering sums of money magicked out of thin air by the eurozone debt deal at the end of last month.

Inflation problem

The problem with electronic money is that sooner or later it enters circulation and then you have too much money chasing the same number of goods and inflation results. As an investor you clearly want to be an owner of the fixed supply of goods and not the inflating amount of money.

However, both gold and silver are very volatile in price and that puts off savers who want a stable bank account, no matter that they are losing money from the day it is opened as inflation is presently well above interest rates.

Yet why prefer silver above gold? Yes it is more volatile in price swings but put simply the total return over time is going to be higher than gold. The available supply of silver is smaller (click here) and less easy to increase through mining activity and that boosts the responsiveness of the silver price to changes in investment demand.

Investment demand

And that is where the real action will come in the silver price. Investors who make money on gold will increasingly diversify into silver on the promise of higher returns and this move will be somewhat self-fulfilling.

If you want proof that silver is going to outperform gold then consider the jump after the conclusion of the eurozone deal: silver up 13 per cent, gold a little below seven. Then again we could still get one more sell-off like in 2008 (click here).

Silver tends to deliver double the gold price increase to the upside and twice the decline on the downside. So as economic mayhem and money creation continues to leave investors with nowhere else to hide but precious metals, silver will come out on top. In extremis silver could even be worth more than gold (click here).

A fixed supply of the precious metals determines the value of it in the markets, however use this link money vanishing into thin air due to high volatility and debt crisis, the safer investment options are always useful during a highly inflationary period when all the currencies, stocks are dipping low.