Gold in Stronger Hands than Silver

Montreal, Canada

Silver prices are now in the midst of a crash after hitting a 31-year high on Friday. This price action should come as no surprise for seasoned investors following a more than 170% gain since mid-2010. In April, silver logged its best month in more than 25 years.

And now silver is losing some important friends…

George Soros is selling silver and possibly, gold. Other hedge fund managers are reported to have dumped silver over the past several days as the metal flirted with $50 an ounce.

To be sure, silver prices were severely overbought with retail demand in India way over the top this year as speculators have been lunging after cheaper silver compared to high-priced gold. And SLV, or the Blackrock iShares Silver Trust (NYSE-SLV), saw assets skyrocket over the last few months. It has morphed into the world’s 12th largest ETF, holding more than 17,000 tons of the metal.

I’m relieved silver is deflating. Relieved because I’m a precious metals bull and I don’t want to see gold or silver run too high, too fast.

In my book, Soros is full of it and so are most other hedge fund managers who try to “talk their own book” so they can buy the same assets at lower prices. That’s what Soros did at Davos, Switzerland, in January 2010 exclaiming gold was entering a “bubble.” Meanwhile, gold prices are up more than $400 an ounce since that comment.

The silver bull market is not over. Same goes for gold. Nothing has fundamentally changed to alter the long-term trend for these metals.

Also, rhetoric about the Fed raising rates at some point is almost meaningless because Bernanke will have to start from near zero percent; it took gold-killer, Paul Volcker, almost 20% interest rates by 1980 to smash-out gold. With the economy still growing on an uneven keel, the Fed will only gradually hike lending rates – especially with unemployment still high and housing now in a second bear market.

Meanwhile, I like gold more than silver. Always have, always will. Gold is in stronger hands than silver, with investors dedicated to the yellow metal through thick and thin, including central banks and other major institutions. That’s not necessarily the case with silver.

Silver should find a bottom in this correction around $35 an ounce. I suspect the speculators, including Soros, will return to the trade once the volatile metal turns the corner and starts rising again later this summer or fall. In the meantime, gold has started to outpace silver again and that should remain the primary trend for the next several months.

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