Silver prices are really going to be on a roll until at least next Spring after Ben Bernanke unleashed his latest round of money printing QE3 last week which echoed the ‘unlimited’ bond buying promised by the ECB the week before.
It’s coordinated ‘QE to infinity’ as Mr. Gold Jim Sinclair correctly forecast the week before. ArabianMoney like ‘The Economist’ magazine is a bit taken aback at the timing and intensity of QE3. We thought Mr.Bernanke might keep his powder dry for a while longer. He did not.
Mr.Bernanke clearly knows a lot more than he is letting on and it is not good news. He is reacting to the nasty known-knowns coming up, namely: the US ‘fiscal cliff’ at the year-end with lower spending and higher taxes; the Chinese economic slowdown or crash that is happening now; and the interminable eurozone sovereign debt crisis with Greece not likely to get a third bailout and Spanish bonds about to be tested to destruction.
To that list you can add the world’s third largest economy Japan and the UK, both in dire economic straits and both vying for the prize of world’s most indebted nation. But what on earth does this mean for investors?
First, the US dollar is toast. The long dollar rally is over. Mr. Bernanke has seen to that with his money printing and commitment to keep interest rates at rock bottom for at least another three years and longer if necessary.
Secondly, inflation is going to rise further for energy, food and all commodities. It’s the old inflationary adage of too much money chasing too few goods. Plus most commodities are priced in dollars so they are directly linked to Fed money printing.
Thirdly, stock markets are somewhat underpinned by this flow of money but are sitll vulnerable as it begins to erode the profitability of many businesses. They will find it hard to pass on inflation of basic commodity prices like oil to consumers and suffer a profit squeeze. That does not just mean manufacturers, think airlines or road hauliers, it is the same thing.
Fourth, this leaves bond markets vulnerable to the downside. The money printing that causes inflation will eventually undermine the credit markets it is supposed to support. Why as an investor would you leave your money in bonds paying miserable returns when you could buy barrels of oil that are inflating in price?
What to buy now
Put this altogether and ArabianMoney comes to the conclusion that real assets are by far your best investment option in this environment, and anything related to them in the stock market. A bond market crash is an accident waiting to happen but has been delayed by QE3.
Every month our sister publication the ArabianMoney investment newsletter makes detailed recommendations of actual stock and other investment ideas that follow through on this basic vision (for a free issue in September only email us: email@example.com ).
Of all the real assets we have the most confidence in silver because it is the precious metal that always outperforms gold over time, and gold is surely the most obvious defense against a falling US dollar and bond market crash, something that QE3 has made inevitable. We tipped silver as the asset class of the year for 2012 (click here ) and reckon it will not disappoint us now.