Last year gold and silver prices fell into a hole with the general stock markets, so the obvious conclusion is that if the stock market rally turns into another bear phase then gold and silver stocks will also fall.
But then again this will only happen if the price of precious metals drops again, and there are plenty of reasons to believe that in a world of money printing and fears about devaluation and future inflation that gold and silver prices are going to go up, and up. You also have to consider the bombed out condition of many gold and silver stocks. The giant Pan American Silver is still 60 per cent off its high a year ago, and many juniors have fallen 80 per cent since then. Now admittedly the gold majors and a few selectively punted stocks have showed much better gains. But perhaps they are leading the pack, and the pack is on the way up. Certainly a stock that has fallen 80 per cent has more upside than potential downside, and ought to be on a list of possible bargain buys. But is this the right moment to stock up on gold and silver stocks? If you read the technical analysts then the charts for precious metals are delicately poised and could be on the verge of a major uptrend. There is a nice cup-and-handle formation in silver, and gold could be breaking out of a typical consolidation period. The fundamentals for precious metals also look very attractive, with printing money now seen as the great new discovery by central banks in the US, UK and Japan. This is inflation by definition, and must result in higher prices for gold and silver which can not be manufactured. Alchemists tried and failed centuries ago. Last year the money from the equities sell-off went into US treasuries. But even the Chinese are beginning to worry that they have too many T-bonds with inflation on the horizon (inflation is the great destroyer of bond values) and have stopped buying with the same gusto. Perhaps this year the smart money will exit stocks and go for gold and silver. And with precious metal prices going up then the leverage of gold and silver equities ought to be the place to be.