Why Have Gold & Silver Been Selling Off? Here's the Simple Answer

Lorimer Wilson October 5, 2011 Comments Off on Why Have Gold & Silver Been Selling Off? Here's the Simple Answer 2,918 Views

Why have gold and silver have been selling off? The answer is very simple. There is a strong correlation between a strong dollar and weak commodities. The U.S. dollar is no different than anything on earth – it will always follow the path of least resistance. As the dollar grows stronger commodities sell off or become cheaper [- and gold could go down as low as $1,500/ozt. and silver down to perhaps as low as $21/ozt. before this is all over. Let me explain further.] Words: 650

So says George Maniere (www.investingadvicebygeorge.blogspot.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Maniere goes on to say, in part:

Take a look at the chart of the dollar below.

In late August – early September the FOMC initiated “Operation Twist” – a plan that [will take] the money that is maturing from the short-term bonds the FOMC had bought during QE2 and rolling it into longer 20 and 30 year treasuries that carry a higher yield. This [has] caused the dollar to grow stronger because the yields on longer treasuries are higher.

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With any investment the old saying is “no risk – no reward.” However with treasuries that have a strong yield there is not the same risk as there is with equities or commodities. The price of equities and commodities fluctuate but with treasuries you are assured that there will be no fluctuation in price and the yield will remain the same. Why would you buy an equity that would yield the same as a treasury and have the risk that the yield could be lowered or the price of the equity go down if the company had a bad year? With treasuries you are buying surety and comfort.

I would like to take a look at two commodities and show how the stronger dollar has impacted their price.

As we can clearly see from the chart [above] of the spot price of gold, as soon as “Operation Twist” …began the dollar grew stronger and the hedge that gold had served against the weak dollar sold off. There was no need to hedge a weak dollar because the dollar was strong.

A look at the chart of silver [below…] look[s] almost identical to the chart of gold. When “Operation Twist” was instituted the dollar grew stronger and silver sold off. There was no need to hedge the dollar with silver.

…I do not believe gold will go much lower than $1,500.00 an ounce. Silver, however, despite being a hedge against the weak dollar, also has industrial uses. If the economy continues to weaken silver could fall as far a $21.00 an ounce. I am certainly not saying that you would be able to buy silver for $21.00 an ounce. There would be margin hikes from the sellers and [I am of the impression that many distributors would… sit on their stock until the price of silver goes back up…

I believe that silver will one day be worth more than gold. I believe that silver is incredibly undervalued. While this sounds like an outrageous claim, silver is actually rarer than gold. This is because silver has industrial applications and every day our technologies will require more and more silver to operate. Silver that is above the ground has been diminished by 91% since 1980, while the stockpile of gold has grown 600%…- and gold could go down as low as $1,500/ozt. and silver down to perhaps as low as $21/ozt. before this is all over. This may be the last chance we will ever get to buy silver at these prices.

*http://investingadvicebygeorge.blogspot.com/2011/10/strong-dollar-equals-weak-equities-and.html

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