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« The Big Picture Hasn’t Changed: Don’t Get Sucked Back Into the Stock Market | Main | Junior Gold and Silver Mining Funds or Individual Gold and Silver Mining Stocks »

Silver is shining now, but beware the devil’s metal 

Silver prices have leapt nearly 50 per cent so far this year, reversing three years of losses, but history shows investors hoping to hop aboard the bandwagon should be wary.

A surge in gold and upbeat prices of industrial metals, along with prospects for yet more monetary stimulus from leading central banks, have prompted some heart-stopping moves.

“I’ve lost hair this year,” one silver trader said after the market shot up by almost a third in one month alone. “And about 20 pounds.”

On the face of it, silver has a lot of appeal. It tends to track gold prices, but its low liquidity usually leads it to outperform the move in gold by around 1.5 times.

Ultra-low global interest rates have helped to buoy gold this year – in the era of negative yields on many government bonds, the fact that bullion investments offer no fixed returns seems to matter less.

Expectations that the Bank of England will pour more money into the British economy following the country’s vote to leave the European Union, plus the possibility that the Bank of Japan and European Central Bank might take similar action for reasons of their own, have helped to push up industrial metals prices.

On top of that, silver has appeal in its own right as an industrial commodity – more than half of demand comes from industrial users, chiefly in the electronics sector. Central bank action to stimulate economies, so the argument goes, should further increase that consumption.

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Silver looks a tad weak at the moment as it heads down towards the $20.00/oz level.

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