Wednesday, May 25, 2011

Volatility in Precious Metals

It seems that precious metals have been bouncing around all over the place.  I have written before on silver being far more volatile than gold.  It has shown that in the last few months.  Silver went up to almost $50 per ounce and then tumbled in the matter of days to below $35.  I has been slowly creeping back up.

Gold also went down, though not nearly as much.  It is back above $1,500.  Gold and silver usually move in tandem, with more volatility from silver.  The last few days has been a little strange in that they seem to be almost alternating days on which one does well.  One day silver will be up with gold flat.  The next day gold will be up with silver flat or even down.

The precious metals market is trying to find some direction.  If we don't get hit with a hard recession with the ending of QE2, then I expect both metals to go up.

When there is high volatility in the stock market, it is often very bearish for the market.  I don't see the same thing with precious metals.  When there is high volatility with gold and silver, there is as good of a chance or better that the prices will go up instead of down.  The high volatility can be frightening to investors, but it can be beneficial to those with a strong stomach for risk.

As far as precious metals go, it may also be worth looking at platinum.  I generally advocate that you get your exposure to precious metals through gold and, to a lesser extent, silver.  Platinum used to be double the price of gold.  With gold over $1,500 and platinum at under $1,800, there is less than a $300 spread between the two.  If you are looking to speculate a little, platinum might be worth a look.

Precious metals may take a big hit if there is another big correction like we saw in the fall of 2008.  Barring that, I expect them to go up.  However, it will not go straight up.  It will be a roller coaster ride.  We are not in a bubble yet.  I still see way too many ads trying to convince people to sell their scrap gold.  If we were in a bubble, you would see more advertisements telling people to buy gold.

Look for the day when gold goes up $100 per ounce in one day.  Maybe then we will be in a bubble.  We won't see an end to the bull market in metals until the Fed decides that it cannot risk the complete destruction of the dollar and tells Congress that it will stop buying government debt.

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