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Gold & Silver, Silver & Gold

Scott Jagow Sep 8, 2009

You’ve probably read that the price of gold surged past $1,000 an ounce today to its highest level in 18 months. It’s a clear sign that investors are worried the path of rampant government spending must lead to inflation. They’re choosing gold over the weakening dollar. But there’s something else I’d like to point out.

Silver prices also climbed to their highest mark in more than a year. Silver is nowhere near the price of gold ($16 an ounce), but silver is up 40% in 2009 and actually, is outperforming gold. You might conclude that silver’s increase can also be attributed to the dollar and inflation concerns but columnist Paul La Monica raises another possibility. From CNN Money:

Silver is a component for products ranging from batteries and semiconductors to solar panels and water purification systems. That means that there are more than just inflation concerns driving up the price of silver.

“There is such a high demand for industrial use of silver. So a lot of companies, particularly in Asia, are gobbling it up in order to get their economies growing again,” said David Beahm, vice president of economic research with Blanchard & Co., a New Orleans-based investing firm that specializes in gold and other precious metals.

So perhaps the increase in the price of silver is a positive economic sign. And at $16 an ounce, it’s also a more viable option for the average investor than gold. You have to think the price of silver will continue to go up, not only as the economy improves, but as the chances for inflation do as well.

But a note of caution from Seeking Alpha:

As the price of the precious metals get higher, the less likely you’ll get the widely quoted price when trying to cash in. Precious metal dealers, being business folk, will not be willing or able to take the risk of buying back your gold and silver at the highest quoted price. Therefore, even though gold was at $800 and silver was at $50 back in 1980, investors who tried to cash in at those prices were being turned away by dealers. This will be one of the signs that we’re at a top in the market for precious metals.

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