Silver outperforms as gold also hits a 2012 high but the best is yet to come

The reaction in the precious metals market to QE3 to infinity was fairly muted this week but Friday saw some important market action nevertheless, with gold and silver hitting new 2012 highs of $1,787 and $35 an ounce respectively.

But over the past month silver is the clear winner. Gold has gained roughly $100 to silver’s $5 an ounce. But that translates into a two-and-a-half times bigger price increase for silver than gold.

Trend spotting

This is a trend that ArabianMoney thinks is going to become a commodity investor’s best friend. We wrote about it in our paid-for investment newsletter last month that we are giving to would-be subscriibers on request for this month only (Email us: circulation@arabianmoney.net [6]).

The particular silver ETF we recommended in that newsletter is up 26 per cent in three weeks. It is our practice not to give such tips on this website and keep them for subscribers to our newsletter who also get a wide range of other investment ideas each month.

But we reckon the best is yet to come for silver and gold investors. The QE3 to infinity promised by the Federal Reserve last week really is the Eldorado for precious metal investors. For where do frightened depositors flee as the global central banks debase their currencies?

Into Yen? The Bank of Japan announced its own further debasement plan last week. The British Pound? The UK is actually ahead of everybody in monetary debasement. The Euro? Mr Draghi’s ECB has promised unlimited bond buying and a Spanish bank bailout looks close.

Nowhere is safe except for the currencies that nobody can print: gold and silver. And why is silver outperforming gold already? Because it is much rarer than gold. There are massive gold reserves in the central banks. Almost all the silver ever produced has been consumed in the fires of industry.

Gold pushes silver up

Push up the demand for gold and you also push up demand for silver. But the reality of the markeplace is that it will always be far easier to satisfy demand for more gold than more silver, and we are just at the very beginning of this realization.

Silver is still cheaper than it was in 1980 when the price spiked to $50. Our old friend Gerhard Schubert, head of precious metals at the Emirates NBD here in Dubai, was the last trader in the world to buy silver at that price as a young trader.

Is it not amazing that 32 years later silver is still cheaper than it was then? Even the catch up with inflation since then just has to make silver a screaming buy, and once the price starts to move there will be no stopping it.