Before you jump on the bandwagon, see who is holding the reins.

December 02, 2010 – If Wednesday’s remarkable stock market rally has you considering moving away from gold and silver investments, it would be wise to take a closer look.

Even more notable than the scope of the rally was a strong indication of equity investors’ sudden confidence in the market’s future stability. That comes from a significant drop in the CBOE Market Volatility Index (VIX), commonly referred to as the "fear index". The optimism that suggested, however, has already been called into question as news of a strong increase in new unemployment claims has put the brakes on futures.

It is true that stocks are performing surprisingly well, but gold and silver investments are doing even better. Continued concern over looming global inflation created by strong performance in emerging markets and the persistent instability in major currencies are expected to keep driving up safe haven demand for gold and silver. But there is good reason to believe that another force is also at work.

Investor confidence in the economy may have very little to do with Wall Street’s rebound. The simple truth is that stocks, even though they are trading at 12 times earnings, represent the best prospects among traditional investments today. Government efforts to hold down rates has reduced bond yields to far below the 90 year average relative to that of stocks. And the currency market has chased away all but the most intrepid investors.

While investors turn to stocks for the earnings the are also taking ever stronger positions in gold and silver to hedge against the dangerous price to earnings ratio. That added demand can only improve the outlook for gold and silver investments in the coming year.

Shannon King

Senior Staff Writer –

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