He Chooses Silver Over Gold 2 Beat Inflation

(From the Arabian money blog by veteran financial journalist Peter Cooper)

jim_rogers_smLegendary investor Jim Rogers, whose conversion to commodities as an investment class back in 1999 preceded the end of the 20-year bear market by a couple of months, is backing silver over gold as an asset class to beat inflation.

He recently told journalists that if pushed to choose between the two precious metals he would choose silver. Rogers has moved to Singapore and is in the process of selling all his dollar holdings because he believes the resumption of the US dollar’s long term devaluation is imminent. He is even shorting US treasury bonds.

Buying precious metals is clearly linked to Rogers negative stance on the US dollar which has an inverse correlation to gold and silver which have indeed suffered from dollar recovery over the past couple of months.

Silver No 1

Rogers admits that silver has been particularly battered down, and perhaps that is why he likes this precious metal. Silver is leveraged to the gold price, so when gold goes down, silver goes down further. But equally when gold prices rise, silver will rise even higher.

Why then should the fortunes of gold change in the near future? Rogers is surely right that the dollar is the key.

We have already seen how economic circumstances have forced the administration into a multi-trillion dollar bank bail-out plan. The follow-through is a fiscal spending package, and state bail-outs for the US car manufacturers. All this is going to require funding at a time when rising unemployment and falling company profits mean tax revenues are falling.

A huge increase in borrowing is therefore inevitable and flooding global capital markets with new dollar paper will be inflationary and devalue the US currency. How to profit from US dollar devaluation? You buy an inversely correlated asset like gold or silver.

Rogers leads the pack

Now if Jim Rogers is right – and he was the first major investor to call the commodities boom – then he is unlikely to be alone for long. Others will hear his call and act on it.

And why is silver leveraged against the gold price? It is simple really. Both are precious metals but the available supply of silver is less than one-tenth the size of the gold market, and the dynamics of supply and demand in such a situation are obvious.


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