This is a very simplified explanation why gold and silver prices are
doing what they are doing at this current time. I’m sure someone here
will want to argue this, or at least the details, but since the
market has been kind to me during the last 3 yrs, I’ll tell you what
I see, and fly by.
The increase in the price of silver as well as gold, are not the
result of a supply and demand issue at this time. In fact, more gold
mines are opening up right now to take advantage of the current
numbers. Risky, but potentially very profitable investments are
currently being made in a field called gold warrants, which are a
major source of funding for gold mining start up companies. If you
know what you are doing, a 20,000 investment has upside potential of
returning several hundred thousand, but could also result in a return
Right now the main cause of gold price acceleration is a result of
dollar value depreciation. One week ago 1 Euro dollar equaled aprox
1.34 US dollars. This evening, that ratio is aprox 1Euro : 1.37US.
The US dollar is falling in value in relationship with the Euro, as
well as just about all other currencies out there. So the amount of
gold you can buy with 1 US dollar this week is smaller than last
week’s amount. Most of the precious metal prices are being
hammered(upwards) as a result of currency devaluations, not supply
shortages, or someone buying it all up. This gold/silver rush has a
totally different cause than the previous when gold and silver hit
800’s and 50’s, respectively.
This is what happens when the Federal Reserve starts turning on the
printing presses- more dollars for the same amount of goods - that’s
inflation. The Fed calls it Quantitative Easing, or QE2 for short.
Currently the Fed is trying to stop a round of DEFLATION(about a
50-50 chance), which is more damaging to an economy than high
INFLATION. Japan has been in a deflationary spiral for over 10 yrs
now, and still hasn’t quite shook it. An example of deflation would
be if you bought silver wire and sheet at $20/oz, and before you
could turn it into something beautiful and saleable, the market
dropped to $15/oz. Now the stuff you have will be harder to sell
than the same stuff the other guy has cause he bought it at $15/oz
this week. And so on. Very vicious cycle.
A small stable amount of inflation is far better than any level of
deflation. Without inflation, you cant make a profit. But too much
inflation, as a result of very poor fiscal management by our
illustrious people in Washington spending WAY TOO MUCH money that we
don’t have, can be serious especially if it gets out of control like
it is currently doing. We currently owe China a boatload of money
that the federal government borrowed by way of selling bonds, T
Bills, etc, to institutional investors, like China and a lot of other
countries We spent this money on programs like welfare, war,
Medicaid, and many others. Well, now we owe more in just interest
payments than what we can pay with tax revenue. If the economy
shrinks(deflation) then tax revenue decreases, and it will be tuffer
yet to pay our government debt. If our economy grows(inflation), then
we will be better able to pay our government debt obligations. It is
possible, mathematically, to inflate our currency right out of debt.
Sounds good, but then other countries will not buy our debt(bonds,
Ts) because they no longer trust our good economic word Since our
government currently is struggling to pay our debt, they have been
practicing Qe1 and QE2- artificially inflating the dollar. By
creating ‘money’ out of thin air, with no ‘real’ increase in the
level of goods and services available to be bought and sold in the
common market place. Now we have more money, but same amount of
goods, so prices go up. Its not that gold became more valuable, its
because your dollar shrank.
Historically, silver usually runs in a ratio with gold of aprox
50:1. For a few yrs now it has been in a range of 60:1 to as much as
64:1. In essence, silver was a bargain compared to historical
averages with gold. I believe today was the first in sometime where
it has dropped(ever so slightly) below 60:1 (59. blah, blah, etc :1).
If gold goes to, lets say 1500/oz, then silver would need to be
somewhere around $30/oz to be in historical average alignment. There
are currently a noticeable number of legit economists that say we may
see silver in the range of $175(2-10 yrs out), which means gold would
need to reach $8750/oz to keep this historical average going. This
means that silver has a much greater upside potential (inflated
prices) than gold has- and golds potential is very high right now.
Nothing is a sure bet, but right now, upward metal prices are
probably the safest bet in town.
One metal that has not done well for a while is rhodium, as a result
of the auto industry crash. Its used in catalytic converters. Aprox
1/2 dz yrs ago, rhodium was selling at 600/oz, shot up to 10,000/oz
in the course of a couple yrs, then came crashing down below 2000/oz
as a result of poor auto sales. As I watched the rhodium market go
fro 600 to 10,000 I wondered if I should play or not but decided I
didn’t know enough about that market, and stayed out. Coulda got
rich(or poor) in a matter of a year or less with a 10,000 initial
investment. Hind sight is usually 20/20.