Many people refer to silver as the “poor man’s gold.”
In other words, it’s a reference to it being a cheaper way to own gold since the two metals act similar to each other much of the time.
But here’s the problem with silver. There are times when it ceases to be the “poor man’s gold.” It’s when the global economy is soft and either in a decline or simply meandering along. And that’s where things are still at right now.
That’s why silver has delinked from gold and is not acting the same.
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I believe this will continue for a while longer because silver is an industrial metal. As long as economies are sluggish and GDP numbers are soft, industry won’t be as robust as it typically would be.
When economies are growing slowly (or not at all) and consumers aren’t buying things, there’s little need to make more products that contain silver, such as electronics or jewelry, etc.
It’s only when things turn back up economically that silver regains the status of the “poor man’s gold.”
I believe early on in 2012 (for the first three to six months), things will likely continue to be soft in the economy and in the overall stock market, too.
The Federal Reserve will likely have to begin some sort of QE3 program to “save the day.” It may be more money printing. It may be the buying of mortgages, etc. But when the stock-market investors feel that the Fed will try to put a backstop in the market, the risk seekers will likely come back into the market.
It will be then that silver will continue to soar once again. Until then, we could see silver dip a bit more before rising again. If silver dips back into the mid-$20s then it becomes a good value again and would be worth holding until close to the end of the next QE cycle.
Gold on the other hand, does act as a “store of value” and works well even in the worst of times because people run to it as a source of stability in shaky times (like we’re in right now).
So I see gold’s uptrend continuing. Sure it got a bit ahead of itself a few months back when it zoomed from $1,500 to $1,900 an ounce in just a couple of short months. But gold has had a healthy consolidation ever since. And since it’s done that, we know that gold is not in a bubble.
In fact, the yellow metal is one of the few assets out there to have maintained a strong uptrend since the financial crisis started in late 2007. I believe this trend will continue on in 2012.
Why? Central banks, like South Korea are buying up more gold — and they should be. After all, most of the central banks of the world hold dollars, euros and gold for currencies.
Well, right now if you were a central banker, would you rather own euros? Heck no! Every day when we all wake up there’s some new twist to this crazy euro saga.
Would you rather own dollars? No, once again. Oh, I know … the dollar could do great for a bit longer while things are sluggish … but once the Fed kicks up its money-printing program once again, that will all change and the dollar will see the next leg of its overall decline.
So that leaves gold as the final, liquid selection for central banks. So in light of all the craziness going on in the world with increasing debt/deficit loads and higher taxation coming as a result and high unemployment remaining stubbornly high…it’s only reasonable to beef up on your gold holdings as a central bank.
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Therefore, I believe that gold will continue to do quite well throughout 2012. I believe that silver could meander along a bit at best or even more likely take one last dive lower before really getting its legs again.
However, once it’s wrung out the last of the “weak hands,” then silver’s rally will likely finally resume.
About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.
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