Gold and silver prices jumped to their highest levels in three weeks, shrugging off a very untimely shift by investors into equities over the past few weeks, on news that US GDP fell in the fourth quarter. That immediately suggested the Fed may have to ramp up its money printing again.
Silver is now up seven per cent in January at just over $32 an ounce while gold is back up to $1,680. It was a spectacular price reversal after a difficult month for precious metals.
Silver rules OK!
The ArabianMoney newsletter’s top silver investment for the year was up 14 per cent in January and subscribers have the full analysis in the latest edition out today (subscribe here and we will also send you the latest edition).
The big question for precious metal investors is where do prices go from here? In a major stock market correction then prices would likely be pulled down as in 2008-9. However, this could time could be rather different because bond markets are also looking perilous places to put your money (click here).
There is certainly a big risk to exiting the precious metals now and an unleveraged buy-and-hold position looks the safest option. Missing out on a major upswing is more of a danger now than getting caught in the downdraft.
But as we saw in January precious metals can be very volatile and that is why portfolio allocations seldom exceed 25 per cent, even though over the past five years silver has been the top performing major asset class bar one or two relatively obscure agricultural commodities.
However, the knee-jerk market reaction to falling GDP has some merit to it. The Federal Reserve has upped its money printing QE to $85 billion a month and will clearly not be able to withdraw it anytime soon. Remember that only this month there was discussion about the recovery being so good that QE could be wound up!
Fat chance of that with GDP falling in Q4. The US could actually be in recession, not a recovery.
Actually gold and silver prices ought to be much higher with all this money printing in progress and the risk of inflation. Markets generally do eventually catch up with reality and they must now do so for the Q4 GDP data that can hardly be brushed aside.
ArabianMoney has been warning about the feebleness of the US economic recovery for a couple of years, now the emperor is finally acknowledged as being naked in the street. Grab some gold and silver or you may end up with the same fate.
Posted on 31 January 2013 – ArabianMoney