Something funny is happening on the gold and silver markets.

August 10, 2011 – Something funny is happening on the gold and silver markets. While gold continues it’s meteoric rise its poorer step brother seems to be on the skids. Very odd, even considering silver’s bad case of ADD.

It is safe to say that the trigger to gold’s run was the S&P downgrade, but why now, and why hasn’t silver joined the party?

We can rule out widespread panic, because the low entry cost of silver makes it ideal for panic buying. We can probably also eliminate long-term safe haven investments, because there has also been a rush to Treasuries. And that is very revealing.

The infamous downgrade apparently has had very little impact on US debt being the safe haven vehicle of choice, but only because there is no broadly available paper alternative. Numerous countries issue far better notes, but the sum total of their economies can’t hold a candle to ours. They just can’t borrow enough fast enough to keep up with demand. But we sure can.

Still, there is something intuitively wrong with throwing your money at what is clearly a dying economy, no matter how big it is. All you get is a tiny sliver of a huge sour pie. And with the ability to cash in your IOUs getting called into question, it seems quite insane. What are they hoping for? To get a square foot of Disney World when we go chapter 11? Obviously the black hole of denial has spread far beyond our shores.

But let’s get back to gold. There have been no significant shocks to supply or demand and speculation has been rapidly declining as prices soar. The only plausible explanation that remains for today’s gold prices is that investors are seeing extreme uncertainty in the equities market. But why only for the short term? Have they gone so completely mad that they believe the spasms running throughout the global stock exchanges are only a transitory panic reaction to our downgrade?

Europe is coming apart at the seams. Asia is desperately waging war against inflation while trying to rescue their wealth from a quagmire of rotting sovereign IOUs. And Bernanke has pledged to boldly stay the course, holding down interest rates at least through Q2 2013. If there is a glimmer of hope in all that, please share it with me.

Although commitment may be weak and the motivation vague, this week’s movement in the gold price strongly suggests growing investor awareness of the re-emergence of gold as the premier store of personal wealth. The silver price implies investors have forgotten that the metal always rides along on its stepbrother’s coattails.

That is bound to change very soon and today’s rock bottom silver prices will never be seen again.

Shannon King

Senior Staff Writer –

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