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Both gold and silver had their best week in three months last week, but silver performed even better than gold at a 5.4 percent gain compared to a 4.3 percent gain.

February 1, 2012 – Both gold and silver had their best week in three months last week, but silver performed even better than gold at a 5.4 percent gain compared to a 4.3 percent gain. Precious metals are nearly guaranteed to be the best investments of the coming months after the Federal Reserve’s Federal Open Markets Committees announcement last week that interest rates will remain low through 2014. Traditionally, low interest rates have been very good for inherent stores of wealth, particularly precious metals. If we are to learn anything from the past decade, when a policy of low interest rates was initiated during the Alan Greenspan years, the biggest beneficiaries of low-rate fiscal policy in Washington are precious metals.

In general, 2012 has been very good for precious metals so far. After a December correction brought the price of gold down to the $1,500 an ounce range the price of silver down to $27 an ounce, the US Mint broke records for sales of gold and silver Eagles on its first day of sales. The Mint sold 37,500 ounces of gold Eagles, 2,000 ounces of gold buffaloes, and 3,197,000 silver Eagles. By the 25th of this month, the Mint had sold 5,547,000 silver Eagles. The all-time monthly record was set in January of 2011 as the Mint sold 6,422,000 silver Eagles.

As Eric Sprott, the director of the $10 billion Canadian hedge fund Sprott Asset management, points out, they’re selling gold and silver on an equal dollar for dollar basis, meaning the Mint is selling fifty times as much physical quantity of silver as it has been selling for gold. Sprott himself recently placed another large order on the open market for silver bullion after shocking some with a $1.5 billion order his firm placed in the October-November timeframe. While Sprott denies it in interviews, the size of the order itself may have been enough to sway the silver market, which is relatively small compared to the gold market. Certainly, when news of the gargantuan purchase leaked, it did affect the buying habits of a lot of investors.

Sprott believes, among other things, that the price of silver is undervalued because it is selling at a 50 to 1 ratio to gold. Therefore, the actual value of the price of silver should be a lot higher in terms of US dollars and eventually the market will have to reflect that dynamic. Even if Sprott is incorrect, and he’s won a lot of awards for being right, the policy set forth by the Federal Reserve indicates that gold and silver will continue their decade-long upward trend until at least the end of 2014.

Shannon King

Senior Staff Writer – GoldSilver.org

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