Saturday, February 19, 2011

How far and long for silver?

Silver broke out to new highs this last week on increasing volume as indicated on the SLV silver fund. The only time in history that silver the metal was priced higher was back in the '80's when the Hunt brothers schemed to corner the market. Silver seems to be powering higher on the weakness of the US dollar. How long will the US dollar continue to slide and what will stop the slide?
Look at this article from Bloomberg for some background.

And my favorite chart of the US dollar:
I think the US dollar will soon go into freefall. There is no support from a price perspective below the lows on this chart. When will this happen, I don't know. It may be starting to happen now. There is talk of the "insatiable" demand from India and China for precious metals. China has allowed the establishment of a saving mechanism in gold that allows people to buy gold on the installment plan. Both of these countries, and much of the emerging market world has a long tradition of viewing gold and silver as a savings vehicle.

The US persists in low interest rates and this country is widely viewed around the world as irresponsible. The US govt. debt continues to skyrocket. There was a time when people all around the world held US dollars as their savings because the US dollar was more stable than the currency of their own country. There are more US $100 bills outside of this country than inside this country. I believe that is changing. The perception of our currency losing value is now becoming widespread and there is no reason to hold savings in the US dollar anymore for everyday savings.
Therefore I do think that the Silver and gold  price will continue to go higher as the world increasingly trades in their dollars for precious metals. And it will most likely continue until the US govt. and the US Federal Reserve is FORCED to defend the currency of this country by raising interest rates. They don't show much of a bent toward that now.

And a few words on the stock markets. At some point these sentiments will start to be felt in stocks. At the present time stocks are going higher on the prospects of inflation in corporate earnings. But the stock indexes are forward looking, and as the US Dollar slides it will increasingly be apparent that we will have to raise interest rates in this country. Higher interest on all of the debt we have taken on has the potential to be catastrophic.

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