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Why silver is the standout buy after the Greek deal

February 22, 2012 - 11:14am

What’s been holding the price of silver below $34 this year? It’s been the possibility of a disorderly default by Greece. Now that we have an orderly default, and what else is a 73 per cent loss for private bondholders, things have changed.

But the price is very high. $170 billion is the highest sovereign debt restructuring in history. The ECB has made north of $1.5 trillion available to European banks. This is highly inflationary in the monetary sense and will be highly inflationary for consumers down the line.

Money printing revs up

The ECB is hardly acting alone. The UK did $80 billion in QE last week. The Japanese skill in money printing knows no bounds. The Chinese are easing up bank reserve ratios, another spigot in the global money supply. The US has QE3 up its sleeve for any stock market correction before the presidential election.

To invest in a world of rising inflation is not as easy as it looks. At first glance you might conclude that everything will go up in price, and Ron Hera is right enough on that (click here). But not everything will go up at the same rate and you need to pick the winners and not the losers in the inflation race.

Why pick on silver? Well, it is the only commodity cheaper now than it was three decades ago. Bullion dealers say people are spending about as much on silver as gold at the moment. Yet we know silver reserves are about half those of gold.

Gold is also rising in price but investors see it as expensive while silver still looks cheap. So what will they buy? The technical charts support silver (click here).

$50 target

Besides we have a very clear reference point for where silver prices are going. Only last April silver almost touched $50 an ounce, and was up three-fold to gold’s two-fold in the past three years. If the bull market has resumed – and prices are back above $34 since Monday’s news on Greece – then this is the level that must be retested.

Could silver still stumble? It looks a lot less likely than before the deal on Greece. There is more liquidity than ever in search of a home in an a currency that cannot be printed and silver is still a money as well as a commodity.

The next ArabianMoney has another idea for investing safely in silver (subscribe here) which we have as our tip or the year (click here).

A final point: we note that ArabianMoney scores by far the most page views for any article on silver investment, so you are following where investment interest is strongest, that is most often a very good indicator of a rising asset class until it becomes a bubble.

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About Peter Cooper / Commentary Author

Peter Cooper is the editor and publisher of the ArabianMoney investment newsletter and the popular financial comment website www.arabianmoney.net.

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