• Gold: 1,648.84 -7.24
  • Silver: 14.93 -0.09
  • Euro: 1.086 -0.004
  • USDX: 100.078 0.119
  • Oil: 23.89 -0.46

Volatile silver up 18% in 12 months lagging gold’s 25% gain, can silver catch up?

December 13, 2011 - 9:30pm

Precious metal investors have little to complain about with gold up 25 per cent and silver by 18 per cent in the past 12 months. By comparison many equity investors have lost money. But behind this gain has been some pretty staggering volatility.

The price of silver over this timeframe has fluctuated wildly from a high of $49.79 in April to a low of $26.05, rebounding to $32 at the time of writing. Gold topped out at $1,923 in September and has been as low as $1,308.

Silver risk on?

If Wall Street was to stage a Santa Claus rally before Christmas then a switch back to riskier assets could well bring the annualized gain for silver above gold and perhaps even above gasoil to become the number one best performing commodity again in 2011.

Silver will most likely not be far off that anyhow, just as ArabianMoney predicted this time last year (click here). However, we remain far from convinced that the ongoing eurozone sovereign debt crisis will allow a Santa Claus rally to lift-off and it could be that a Greek default trips up precious metal prices and temporarily derails our 2011 tip for top performance.

However, you need to take a look at total return over time and make your own assessment on the performance of precious metals. What if the volatility occasionally means you have to show a few months of patience? The important thing is that the performance is still there!

$50 silver

That is one reason for being very confident that $50 silver cannot be far away. We have already come within a few cents of that old 1980-high in 2011. How long before silver stops being the only commodity to trade at a lower price than it did 31 years ago?

This is not really asking very much is it? The conditions of monetary inflation that have inflated the prices of the monetary metals have not gone away. Most forex traders expect the US to unleash QE3 money printing early next year, probably in response to a default in the eurozone by Greece.

Staying long in precious metals may require a strong stomach for volatility but it certain pays in total returns.

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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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