Gold has had a ten-year bull run; one that has dwarfed the returns of the S&P 500, which is basically flat. Both gold and the S&P have had pull backs in the last ten years. The biggest pullback was suffered by the S&P, not gold. The consensus among mainstream market analysts seems to be that the S&P continue its climb, but that gold is in a bubble and subject to a deep correction.
But stocks are in a bubble, not gold. In the past 30 years, the S&P has risen about 1500%. But earnings have risen only about 300%. Earnings, or more correctly, expected earnings, is the fundamental basis for stock valuation. Putting a value on gold is much more difficult. But we can still look at the fundamentals of gold.
In 2010, for the first time ever, investor demand for gold surpassed jewelry demand. Industrial demand remains negligible. Why is investor demand up? Many reasons. One reason is that gold outperformed the equities markets in 2010. But there are many fundamental factors.
One is risk to the dollar, the world's reserve currency. If the dollar isn't safe, what other currency, what other country's bonds are safe? Many are turning to the safety they believe is inherent in gold.
Economic difficulties around the world and in the United States are growing. There are demonstrations and rioting over high unemployment and rising food costs in Middle Eastern countries. Unemployment remains high in the U.S., and there is no end in sight. Even Ben Bernanke warns that it could take five years or more for employment to return to health levels.
Government debt levels are high in most countries, and still growing. U.S. debt dwarfs that of any other country. No combination of countries can bail out the U.S., even if those countries weren't already struggling with their own sovereign debt issues. And the politicians continue to spend in most countries, increasing the debt even further.
How do governments spend money they do not have? Borrow-except the U.S. The U.S. cannot borrow enough at low rates, so the U.S. is lending to itself. In other words, the U.S. is monetizing its debt; printing money-which causes...
... inflation. Inflation is recognized in China. It is not yet recognized in the U.S. The National Inflation Association estimates that the real rate of inflation in the U.S. is at least 5%. With short-term U.S. treasuries selling for 2% - 3%, this means the real interest rate is experiencing a negative return.
Another fundamental; the threat of war. Think North Korea and Iran.
Doug Casey, a long-time, highly respected gold analyst, reports that gold production remains flat in spite of much higher prices and tightening supply.
Gold is not in a bubble. It has pulled back many times, and will again. But when the stock bubble bursts, and when the government debt bubble bursts, and when inflation sets in, gold will begin to form a price bubble.
What does all this have to do with silver investing? Silver is known as the poor man's gold. As the fundamentals for gold continue to drive prices higher, investors will be driven to silver. But the silver fundamentals are even stronger, especially supply/demand. Over half of the silver mined in 2010 was consumed by industrial demand. The physical supply of silver is very low.
Gold is getting a little attention; silver none. That is great for silver investing.
Learn how to protect yourself against the current (and impending) economic disaster with silver investing. For more information: http:www.esilverinvesting.com
