There is no question that commodities can be risky. By far the scariest commodity ride has been silver. Speculation is based on a perception of reality. As the U.S. economy struggles under its tremendous debt load and Washington keeps recklessly pushing treasury bonds to expand the supple of money, it is understandable that gold would be seen as a valuable hedge against inflation, but silver is a different story.
Silver value is not driven by investment alone, instead there is an industrial demand for silver. The problem is that as the world economies struggle under massive debt loads and sluggish production, the demand for silver can wane and when that happens the price falls. Up until recently the percentage price increase of silver had outpaced gold. Now many believe we are seeing the biggest shakedown in silver since the Hunt brothers tried to corner the market back in the 1970′s.
As an historical side note, Texan billionaire Bunker Hunt, build his huge fortune drilling for oil in Libya but increased his investment in the silver market after Muammar Gaddafi nationalized the Libyan oil wells in the early 1970′s. Bunker and his brother Herbert began to buildup a stockpile of silver taking the price from around $1.50 to $50.00 an ounce in 1979, when Comex shut the market down and changed the rules on them. The Hunt’s lost a fortune when silver collapsed to around $10.00 an ounce.
Fast-forward to May 2011 and we see that silver kissed $50 an ounce only to drop back down to $32 and ounce. Some are claiming that it will continue to fall further, because even at its current price there is a lot of investment speculation. Silver has led the carnage in commodities.
Unlike stocks and bonds, commodities don’t carry a yield. No dividend, no coupon to clip. Commodities are driven by supply and both real and perceived demand. In the case of gold investors believe that the value of the dollar will fall as inflation ensues so they see gold as a hedge against inflation. Gold has virtually no industrial demand to push up its price. Silver on the other hand has industrial demand and when that demand is seen as falling the price of silver will too.
Jackie Gordon writes about business issues. Use Silver to generate cash flow find out how at Numis Network. Stop speculating in Silver, instead buy Silver with a price Gaurantee.
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