US stocks enjoyed their biggest first quarter rise since 1998 with the S&P 500 up 12 per cent to above 1,400. But the price of silver was up 16 per cent in Q1. Gold trailed behind with a 6.3 per cent increase.
Silver is a standout winner, and was the ArabianMoney pick of the year (click here). Both precious metals benefited from a short-covering rally after a profit-taking sell-off at the end of last year. However, there is clearly more to this than technical short covering.
Money printing galore
Stock markets have rallied against a very poor economic background that arguably became less risky in the short-term as the eurozone came up with $1 trillion to prop up its banking sector. Still China has showed ominous signs of a slowdown and a surge in oil prices threatens to snuff out a US recovery as evidenced by falling durable goods orders.
Nevertheless there is no doubt that central banks are printing money to support the global economy. There is also no doubt that some of this money is supporting asset prices and pushing them higher often with little justification on fundamentals.
Is the stock market and commodity complex, and that includes precious metals therefore set up for a big fall? A major correction is certainly possible at almost anytime. Eurozone finance ministers concluded that their sovereign debt crisis could resume quickly and without warning last week. But what happens if the pressure resumes on the euro or dollar?
These currencies fell versus rare and finite gold and silver in the first quarter and this trend looks set to continue in the coming months as negative real interest rates and currency debasement continue. Those precious metal investors always waiting for the right moment to invest may be frustrated again.
Hedge funds are almost entirely out of the silver market right now. Strange how they have missed the boat on the best investment of Q1. What if they decided to buy into silver again? Would we not see the $50 high of last April (and 1980) broken again?
Silver is always a highly volatile investment class but does tend to outperform gold to the upside (and underperform to the downside). ArabianMoney sees 2012 as a bumper year for silver because none of the factors propelling prices higher has gone away, indeed they are all accelerating.
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