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Monday, August 22, 2011

Silver an industrial metal?

There have been many prognosticators and market mavens who have bellowed over and over about how an upcoming economic implosion will cause silver prices to crater.

This is wrong because it is based on the incorrect assumption that silver is primarily an industrial metal. The reasoning goes that when economic activity goes down, the price of silver goes down. The reason this is incorrect is simple: Silver has some industrial uses but has moved back to a monetary metal. One need look no further for confirmation for this than simply look at a spread chart between copper (the ultimate industrial metal) and silver. The spread between the two has diverged to the point that one can no longer claim any correlation at all. That is, silver has decoupled from the industrial demand in determining its price basis. You will find that spread (and other market graphicss) here. Jim Willey points out that silver is reasserting itself as a monetary metal. Therefore, it is primarily an anti dollar play, and its value will be assessed on the basis of the strength of the US Dollar, rather than its industrial usages. China in particular, is buying the stuff as a compliment to its gold purchases

So, the frantic calls why silver is bound to sell off always lead with "recession." They are in serious error. They always have been, but at least you know it and know why, now.

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