The yellow metal is the choice of investors concerned about the eurozone financial crisis and those in China worried by inflation where central bank buying is up by a factor of five this year. Perth Mint has reported speculators selling their gold and buying silver which is now rising in a spike pattern and thus offering higher rates of return.
Moment of truth
The ArabianMoney newsletter for December offers its subscribers a comprehensive round-up of investment opportunities and also reviews precious metal investment strategies (click here to sign-up).
However, the core argument is that this silver price spike is a warning to investors in precious metals. We know that price spikes always come at the end of a trend and are unsustainable.
The message for silver, and by implication gold, is that a price blow-off is at hand. Precious metal prices can surge much higher from here into the New Year, and gold could easily take out gold guru Jim Sinclair’s $1,650 target for mid-January, set an astonishing eight years ago.
But this kind of price rocket always runs out of fuel. More and more pile into the market until there is nobody left, or not for this round of buying. Then prices return to earth, very swiftly.
Silver in 1980 again?
Silver did this in 1980. And actually the $50 an ounce all-time high of that magnificent spike has not yet been seen. Perhaps it will be in early 2011. Silver has always been highly speculative as an investment class and history has a habit of repeating itself, if only because investors read history and act on it.
How will 2011 pan out for investors in gold and silver? Well this is what the ArabianMoney investment newsletter discusses in depth this month and we do not want to reveal our full thoughts for free on the Internet.
We will, however, be referring back to our full view of the year in future posts on this website, and subscribers can check whether we get this right. But gold and silver investors need to be more careful about 2011 than any other year since this bull market started.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.