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-- Posted Tuesday, 26 May 2009 | Digg This Article | | Source: GoldSeek.com
History does not always repeat itself. Last autumn gold and silver stocks fell with the general stock market and the money went into the US dollar and treasuries. But it could be different this time. Last week both equities and bonds sold off, something not often seen in financial markets. It is not hard to see why: equities have priced in an economic recovery that looks increasingly implausible as the latest data appears, while the US is inflating its money supply as if tomorrow never comes and expecting the dollar, and therefore bonds, to hold their value. Supply and demand Financial markets can defy the force of gravity for a short while but supply and demand always rules in the end. An oversupply of money means a devalued dollar and that bond holders will demand a higher yield to offset the impact of devaluation on their investment. As bond yields rise so bond prices fall. Therefore anybody shifting their money out of equities now has a big dilemma. Is jumping out of the equity frying pan and into the bond fire a good strategy? No, so what is the alternative? Well the sharp upturn in gold and silver prices last week suggests that precious metals are the answer. They do not deflate with the US dollar, indeed they are inversely related and will rise automatically in value as the dollar falls. The gold and silver markets are also tight and so serious new investor demand would quickly inflate prices. Different this time? Now last autumn owners of gold and silver stocks got burned in the market sell-off. But that was because the price of precious metals also took a tumble as funds scrambled to sell anything to meet margin calls. How likely is that to happen if precious metal prices are rising and not falling this time? Surely if anything the shift ought to be in the other direction as funds look to leverage gold and silver with stocks. Pan American Silver, for example, rose twice as fast as silver in value last week. At the very least in a big sell-off then a downturn in precious metal stock prices ought to be brief and followed by a swift recovery. It might be a buying opportunity, or it might be a buying opportunity that never arrives and that holding on to precious metal stocks is the soundest strategy.
-- Posted Tuesday, 26 May 2009 | Digg This Article | Source: GoldSeek.com
Previous Articles by Peter Cooper
About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in
1999 to complete his first book, a history of the Bovis construction group.
Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.
 Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.
He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.
Order my book online from this link
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Why Gold and Silver Stocks Might Beat a Market Sell-Off This Time
