Gold And Silver React Differently To Correction

February 16, 2010 – Although both are precious metals, gold and silver are not identical twins and do not react to price corrections in the same way. While gold has recently been moving strongly out of the correction that occurred in December and January, silver has been coming along slower, although analysts see optimism in the silver recovery, both now and in the days ahead.

After peaking in early December, both gold and silver have fallen off, giving back those gains as the US dollar responded sharply to the growing economic crisis in Europe. With sovereign debt problems still raging in Greece, Spain, Portugal and Italy, inflation has begun an assault on the British economy by rising to 75% higher than was originally forecast. While these crises have spurred gold, silver has lagged behind. "Silver has suffered more than gold in the recent correction, both price-wise and in terms of the COMEX net long position," says a recent publication of Precious Metals Investment Weekly.

The cumulative decline in silver futures over the past three weeks is now near the highest posted since 2005 and during that same time price volatility has affected silver more, with gold falling 7% while silver dropped 21%.

The good news is that analysts are predicting rallies for both gold and silver in the near future, and silver looks to be the biggest beneficiary of that jump. "A bounce in gold is often, but not always accompanied by a better one in silver," writes GFMS Analytics director Rhona O’Connell for MineWeb, "especially if it involves short covering" by formerly bearish speculators.

This data, coupled with a Gold/Silver Ratio that is very high in favor of silver, suggests that now is an excellent time for investment in both metals. Gold and silver investments allow traders to diversify their portfolios between two metals that have historically been profitable and still maintain their reputations as hedge investments during difficult economic times like these. 

Shannon King

Senior Staff Writer –

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