Investing.com: Why Silver Stands to Gain

Article by Clive Maund in Investiong.com

The way you see silver now depends on whether you see a glass that is half empty or half full. If you are a pessimist by nature you will be grumbling about its underperformance relative to gold up to this point, but if you are an optimist, as we certainly are with regards to silver, you will see it as maintaining the opportunity to pick it up cheap before it really takes off higher in a big way, which as we will now proceed to see is a fast-growing probability.

After being smashed in March when the stock market tanked, it staged a recovery but started looking decidedly timorous as it approached a zone of heavy resistance in April and its unfavorably aligned moving averages.

It was set up to take another severe beating in the event of the stock market tipping into another down wave, especially as it has been forced gradually lower by its falling 50-day moving average over the past several weeks. But during this period the Fed has been creating money at a stupendous rate to throw at the credit markets and the stock markets to prop them up, and there appear to be no limits to how far they will go in pursuit of this objective.

Needless to say, this action is hugely inflationary in its implications and will lead eventually to hyperinflation, although it won’t start to kick in until the velocity of money increases, and we can expect gold and silver to anticipate this. Right now there is no velocity of money because the economy is dead, but we can expect them to keep pumping money until they get things moving.

Just how undervalued silver is relative to gold is made dramatically clear by the 20-year chart for silver over gold. Every time this ratio has dropped to a really low level it has led to a major sector bull market, but now it is much more extreme suggesting both that the looming bull market will be big and that it is likely to start soon.

Use the cloak of recent weakness to get it on board as fast as you can, even if a worst-case scenario eventuates and the stock market drops despite Fed pumping and silver drops back towards recent lows, so what?

When the hyperinflation hits silver could easily end up at $100 or $200 an ounce, and maybe much higher, so why quibble about a possible $3 or $4 drop from here, which in any case is considered much less likely now?

To read this article in Investing.com in its entirety and view the relevant charts, click here.