Silver up 13%, gold 6% since New Year
Posted on 23 January 2012 with no comments from readers
Gold and silver have started the New Year with a bang with prices up by six and 13 per cent respectively. This appears to confirm that the end of 2011 was the end of the recent price correction in precious metals.
The main reason for the current price gain appears to be speculation that the eurozone crisis is going to come to an orderly conclusion. That has shifted money back into the euro and yen and out of the dollar, boosting commodity prices like gold and silver.
Silver outperforms
Silver has behaved in its typically volatile fashion outperforming gold by a factor of two to the upside. Investors with longer memories will recall that this also works in reverse.
But can this recent price gain hold for precious metals? What if the optimism about the eurozone crisis resolution proves to be hubris? That has been the pattern now for almost two years: hopes of a resolution are suddenly dashed by a return to reality.
We are most probably going to see that again. The Greek private debt talks are in trouble, and even a satisfactory resolution means $150-200 billion in losses for European banks to absorb with France and the UK the biggest losers.
US banks have also vast cross guarantees of eurozone debt which are an instant contagion mechanism, so this problem will leap the Atlantic at the speed of electronic transmission. Nobody is too sure how even an orderly Greek debt rescheduling will impact on the global banking system.
Therefore we could well see the reversal of the return to the euro and yen and a shift back into the US dollar. That would be negative for gold and silver prices.
Wall Street crash
Then you also have to wonder about the stock market response. Would Wall Street take a hit? It seems inevitable and only yesterday ArabianMoney published a chart showing that a correction looked highly likely (click here).
If we do revisit the sell-off of 2008-9 then precious metals are unlikely to emerge unscathed, though as we have argued on this website before the fall in prices should be less dramatic because we have already seen the correction of last year.
So perhaps it is a bit early to break out the New Year champagne for investments in gold and silver though we are happy enough with our pick of the year (click here).
