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Gold and silver entering a win-win scenario for the hedge funds?

 -- Published: Monday, 7 July 2014 | Print  | Disqus 

By Peter Cooper

This is the sort of investment play that the hedge funds really like: heads you win and tails you also win. Gold and silver are entering a win-win investment scenario. This is a true hedge.

If the Fed succeeds in creating inflation, and recent rises in food and housing costs suggest money printing is finally feeding through to CPI, then gold and silver are the natural hedges against inflation and will rise in price as investors finally get it.

Wall Street Crash

Then again if the stock market tumbles gold will outperform equities to the downside as it did in 2008 and outperform on the rebound as it did in 2009. Silver offers a more volatile and dramatic price movement for hedge funds to exploit with leverage.

Life is generally more complex than a black or white alternative so the chances are that we are going to get some kind of combination of the two.

For example, the stock market could crash as oil prices rise on bad geopolitics and investors finally realize that the US economy dipped back into recession this year after the 2.9 per cent slump in Q1 with the June jobs recovery an illusion created by a switch to part-time workers.

How would the Fed respond? Surely the QE program would be extended and ramped up. What else could the Fed do? The problem then would be the impact on the outlook for inflation.

Investors would rush into precious metals first as they did in 2009. But what if things then got worse and the bond market was finally in trouble? Thatís where it becomes very interesting for gold and silver.

Bond market collapse

The final stage of the precious metals rally that started back in the early 2000s is a price spike delivered by a collapse in the global bond markets. You donít need this website to remind you that there is a clear and present danger in bond markets that have become the largest bubbles in financial history.

The clever thing to do is to stay on the opposite side of this trade and that is precious metals. For where will investors go if their treasured bond markets are in trouble?

Itís happened countless times in past history: they dump bonds and paper assets and head for real assets like gold and silver, oil and real estate. And which of these assets looks the most undervalued?

Well silver today trades at around two-fifths of its all-time high in 1980. Thereís your bargain, followed by gold if you want lower volatility.

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 -- Published: Monday, 7 July 2014 | E-Mail  | Print  | Source:

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