Who wants gold when silver looks to offer turbo-charged inflation
Current Surge in bids to buy silver might seem dramatic, but it's more
measured by far - to date, at least - than the true silver bubble of Sept.
1979 to Jan. 1980.
so, you may as well call this a record price. In real terms, as Matt Turner
at Mitsubishi told me this week, one ounce of silver briefly rose above 40 of
today's US Dollars per ounce in 1864, when the American Civil War neared its
climax. In nominal Dollars, the Hunt brothers' multi-billion-dollar corner
only saw it more highly priced on 5 trading days in Jan. 1980. And while US
investors waiting to buy silver are also still waiting for it to record
a new intra-day high, it's already broken new ground against the British
Pound and for most of the Eurozone, too.
cause? Gold investors have long tried to explain how the metal is
"telling us" something. "First warning" of the looming
financial crisis, said Marc Faber in his Gloom, Boom & Doom Report
of Sept. '07, was when "the price of gold more than doubled in nominal
terms and against the Dow Jones Industrial Average [because of]
ultra-expansionary US monetary policies with artificially low interest
which case, and with global interest rates further below zero today after
inflation than at any time since 1980, what in the hell is silver telling us
pay a lower rate of interest than regular Treasuries," explained Bloomberg News when the yield offered by 5-year
Treasury Inflation Protected Securities briefly dipped below zero (and $20
silver broke a 28-year high) back in March 2008.
because their principal rises in tandem with a version of the consumer price
index which includes food and energy prices. Rising demand for TIPS [which
pushes up prices and so pushes down the nominal yield] indicates investors
expect the inflation adjustment to make up the difference."
great expectations TIPS buyers must have of Uncle Sam's "inflation
adjustment" today! They're buying 5-year index-linked bonds with a
nominal yield of minus 0.6%, anticipating a full 2.8% per year fillip from
Washington when compared with the annual yield now offered by conventional
5-year bonds. And what greater hopes still must the new rush of silver investment
hold...rejecting TIPS in favor of metal, and breaking silver's tight
connection with both gold prices and TIPS yields as our chart above shows.
the point at which silver breaks higher - right when Fed chairman Bernanke
vowed to begin QEII in summer last year. That a fast-growing nugget of the
world's private wealth is fearful of the result is clear. That silver looks a
turbo-charged play is clearer still. Because as an industrial as well as
monetary metal, silver is exposed to strong economic growth - as well as
loose central-bank policy - in a way that its cousin, gold bullion, isn't.
You could point to 2010's record levels of Indian and Chinese gold demand
coming off their continued economic booms, but silver Asia's silver
investment demand is surging faster still. And the aim of all this easy
money, remember, is to keep GDP stoked, whether in Beijing, Washington,
Frankfurt or London.
wonder then that Chinese, US, Eurozone and UK
inflation is rising sharply. And so no wonder either then that...
- By value,
London's wholesale bullion market last month saw silver volumes jump to
one-sixth the daily turnover of gold plus silver, according to the LBMA's new stats, released to members today.
That's a 13-year high. In raw dollars, silver turnover set new all-time
records for the second month running.
- By number, New York's Comex saw
the volume of silver futures contracts overtake the volume of gold
futures on Monday and Tuesday this week. By value, silver trading rose
to one-seventh of total gold and silver volumes, up from a seventeenth
just a month ago.
Securities say their silver exchange-traded products saw "more
flows than any other individual commodity ETP" in the first quarter
- Here at BullionVault - the world's largest gold
ownership service online - our customers have pushed silver trading up
from 22% of daily volumes by value in January to 27% in both March and
so far in April.
no bull market like a silver bull market, in short - just ask the Hunt
brothers ahead of their bankruptcy, eight years after their corner blew up
with the big inflation-fueled 1970s' bull market. Double-digit Fed interest
rates popped the bubble back then (plus a good dose of anti-speculative
action by regulators and the exchanges, otherwise known as "saving the
system" of course. It was sparked in turn by the Hunt brothers' own
naked greed, otherwise known to them as "inflation protection").
The most recent time silver got hot, however, it took oil at $150 and then
the Lehman Brothers' collapse to do to GDP growth and commodity prices what
central bankers wouldn't dare. Because raising interest rates to double
digits to kill a "speculative frenzy" wasn't politically
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City correspondent for The Daily Reckoning in London, Adrian Ash is
head of research at BullionVault.com – giving you direct access to investment gold,
vaulted in Zurich, on $3 spreads and 0.8% dealing fees.
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