By Kevin Grewal, Editoorial Director at www.SmartStops.net
Historically speaking, silver and gold move in tandem and silver traditionally has greater price movements and volatility due to its lower activity levels, but is this the case in 2009?
Towards the beginning of the economic downturn uncertainty loomed over Wall Street and many investors fled to gold as a safe haven, a way to hedge against a weakening stock market and a way to protect against inflation. According to the World Gold Council the demand for gold is still prevalent and remained strong in the second quarter. In fact, investment demand for the shiny metal rose by 46% from earlier in the year; however, it is down 9% year-over-year. What’s more, the SPDR Gold Trust ETF (NYSEARCA:GLD) is up 16% from a January low of $79.79 to close at $92.34 on Monday.
Although gold has remained healthy and in an uptrend, many experts believe that with an improving global economy, a stronger U.S. dollar and weaker fears of inflation, demand will gold will soften however will remain range-bound in the near term.
As for silver, it has many of the same roles as gold, in that it can be used as a safe haven and can be used to for hedging purposes. What makes this metal so much more different than gold is its importance in industrials. Silver is often used in electronics and batteries and therefore is directly influenced by base metals. In addition, most silver is mined as a by-product of other metals such as lead, zinc and copper, therefore supply and demand influences on these metals indirectly influence silver.
As for the future of silver, many expect it to remain shinny as the risk-appetite theme continues to grow with a recovering global economy and production cutbacks in base metals output will put supply pressures on the precious metal. The iShares Silver Trust (NYSEARCA:SLV) is up 33% from a January low of $10.45 to close at $13.90 on Monday.
When investing in these precious metals, one must be mindful of the inherent risks involved. To help minimize these risks an exit strategy with specific price levels is important. According to the latest data from www.SmartStops.net, an upward trend in the previously mentioned ETFs could come to an end at the following price levels: GLD at $89.86 and SLV at $13.43. These price levels change on a daily basis and updated data can be found at www.SmartStops.net