Tax & Financial Consulting Services
Where To Park Your Money and Ride out the Sub-Prime Storm
by Mike Burnick
I can hear all you gold-bugs cheering out there. And why not? Gold recently topped US$700 an ounce, its highest level in 16-months. And now gold is racing toward fresh multi-decade highs. What's the trigger for this quick turnaround in gold? The return of easy money!
The sub-prime debacle continues to spark ongoing market shocks in nearly every part of the financial world. This debacle is causing global credit markets to seize up; and you know what the standard central bank response is...
Firing Up the Printing Presses Once Again
In response, the U.S. Federal Reserve and other central banks around the world are stuck between a rock and a hard place. They have little choice but to crank up the printing presses again and create more credit out of thin air.
As the sub-prime mortgage crisis advances the inevitable day of financial reckoning, the Fed and other central banks are going to do whatever they can to keep the party going. And that means expanding credit.
The central banks have injected hundreds of billions of fresh cash into the global financial system, the Fed has already slashed the discount rate, with more cuts likely and the European Central Bank recently skipped an expected rate increase.
Of course, this policy response means just one thing - debasing currencies - especially the U.S. dollar. (It doesn't take a currency analyst to understand why the dollar just fell to a 15-year low against all major currencies.)
The bottom line here is that easy money is back in vogue as the preferred policy to fight off financial disaster.
Gold Isn't the Only Metal Worth Headlines
It's very possible we'll see lower rates in the United States. Lower rates mean a lower dollar, and a lower dollar means higher precious metals. So it's no surprise that precious metals are back in high demand by investors.
Gold typically attracts all the glittering headlines, but for my money, silver may be the better game in town in terms of upside potential right now.
Over the Past Few Years, Silver Prices (Top Line, Red) Have Outperformed Gold.
Over time, gold and silver prices, the two most popular precious metals, generally track each other pretty well. However, cheaper silver prices often outperform gold in terms of percent return over long stretches.
Silver prices have shot up nearly 90% since just 2005, while gold has also performed well, but has trailed silver with a gain of 56% by comparison. Going a bit further back, both precious metals have posted impressive returns in recent years. Gold averaged 26% annual gains since 2002, while silver investors have really cleaned-up with average yearly gains of 36%.
Silver's in Higher Demand
After the recent precious metals pullback however, silver looks like a better bargain, since right now it's sitting about 15% off its highs.
Putting aside stronger investment demand (which I expect to push prices higher); silver prices will REALLY climb as a result of white-hot industrial demand. All around the world, industries literally can't thrive without silver, and that fact alone may give silver the edge in terms of upside performance.
In fact, silver is used in a growing number of industrial applications, many of them high-tech. For instance, silver is widely used in electronics such as computer circuitry, cell phones, and especially in those fancy new HD flat-panel plasma TVs.
Silver is widely used in industrial electronics, including capacitors and conductors. It's also used in applications such as medical products, automobiles, aircraft manufacturing, batteries, industrial reflective coatings, and in the production of photo-voltaic solar cells and water purification systems.
Emerging Markets Will Push Silver Prices Over the Edge
Surging industrial demand for silver, especially from fast-growing emerging economies like China and India, is having a much bigger impact on prices than most people realize.
According to data from the Silver Institute, industrial uses for silver soared 6% in 2006 to 430 million ounces. That makes 2006 the astounding fifth straight year of steady growth. In fact, total industrial demand gobbled up more than 50% of global supply last year for the first time.
And surging demand in many of these markets should keep silver prices on a steady upward trajectory as the bull market in commodities kicks into high-gear once again.
P.S. Do you want to step up to really big potential gains as silver prices surge higher? Right now, I have my eye on several leveraged bets on silver, gold and other precious metals that have the potential to hand you 50-to-1, or even 100-to-1 upside profit leverage on surging metals prices.
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Gary Gray, RFC
Tax & Financial Consultant
877-817-6031 toll free
"Remember, when you give your money to someone else to invest for you, it works for them before it works for you.