Monday, October 12, 2009

Gold Emerges

On the other end of the see saw is the price in precious metals.

Gold and silver have had a spectacular run over the past four weeks. Before going any further I will just say that a pull back in the market is due, and when it comes it will most likely be violent as it has been during the entire secular bull market since 2000.

That being said, a pullback should be met with a smile as this offers the time to add to your positions.

While gold is making new highs and been the darling of the media, silver has quietly moved in the shadow. At $17.75 as of this writing, it is still a long, long, way away from its $52 high in 1980. Adjusted for inflation its high today would be over $110.

Silver will blow past both of those highs in the coming years. There are multiple reasons for this:

1. The rest of the world is already recovering and moving forward without the United States. Australia did not enter recession and raised interest rates last week. China is on fire and is the new growth story of this century. Silver is used both as a precious metal, but also an industrial metal. As the world continues its growth it will demand silver.

2. The current above ground supply of silver is close to all time record lows. There is currently about 2 billion above ground ounces of gold available and about 600 million ounces of above ground silver. This makes silver 3 times rarer than gold when measured in supply. Throughout history we have never seen a scarcity like what is currently present.

3. There is a massive short position by three of the largest banks suppressing the price of silver. Just as the artificial lending market for housing today is keeping home prices up, this artificial short position has held silver lower than its free market value. This short position should not be something to be hated, but cheered. It only adds future upside value to the final price.

As we move forward over the next five years you can expect to see a continued world of cause and effect:

*The US economy falls causing the Government to make mistakes.

*The Government continues to make mistakes causing the dollar to fall.

*The dollar falls causing precious metals to rise.

As you hear about the price of gold in the news, keep your eyes on the metal in the shadows. The next three to five years will be silver's time to shine.

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