Silver prices rallied by four per cent after Ben Bernanke sat down from speaking at Jackson Hole on Friday, and that was with the chairman of the Federal Reserve hinting at QE3 to come and failing to actually do it.
In late August the silver price broke out of its long sideways trading range that has been followed since the price hit almost $50 in April 2010. The most volatile of metals is on the way up again. Traders know it, investors know it and Mr. Bernanke’s dovish view on inflation can only help.
Of course gold is the precious metal that usually makes all the headlines. We doubt that will be true over the next month. Silver almost always outperforms gold to the upside and upside is what we have in the precious metal charts this month.
If the central banks of the world are going to print money big time to try to keep their anaemic economies afloat then there are consequences good, bad and indifferent. For one thing savers are the losers because the value of their hoarded cash will gradually be whittled away by inflation and low interest rates.
You need to stay on the rightside of the inflation curve. That means investing in assets that are fixed in supply while the paper money mountain grows and grows. Step forward precious metals that have been gaining consistently in value over the past decade while the money supply has balooned.
Bond market crash
People are beginning to catch on but we have not yet seen a run on gold and silver reserves, though the switch from paper money to precious metals has been going on for sometime now. At what point will that trickle of converts to gold and silver become a flood of anxious people wanting out of paper money?
That will come when the bond markets crash. Keeping interest rates low and printing money is not good for confidence in bond markets. Eventually savers must realize that they are being duped by money printing as inflation is destroying the spending power of their cash in the bank, and when they pull that money out the bond market will collapse.
This has already happened in Greece and Spain, for example. Their bond markets have fallen and interest rates have been driven up. And if history is any guide then when bond markets crash this is the moment that the most money is transferred into the very limited supply of precious metals and that sends their prices up like a rocket.
Silver is in much shorter supply than gold and trades in a much tighter market therefore it feels the price impact first and most strongly. The ArabianMoney investment newsletter this month considers exactly how best to invest in silver and if you would like to know our views then kindly take up the complimentary issue offer that is running for September only (email us for your free copy: email@example.com).