It’s open season. Time to lock and load.
This past week Fed Chairman Bernanke announced yet another round of Quantitative Easing in which the Federal Reserve will buy $40 billions worth of mortgage backed securities every month… indefinitely this time.
In other words, unlike the 2 previous ‘shock and awe’ approaches, they’ll be rolling out this latest round of QE continuously until they feel confident enough that the economy is back on terra firma.
So you know what that means…
We could see new highs for metal prices in a matter of months.
But while gold will likely be on the rise as well, it’s the silver bugs that are most excited about this third round of money printing.
If the recent history of silver reacting to QE rollouts is any indication, this metal is once again on a major breakout path.
When the first round ran its course between December 2008 and March 2010, silver surged nearly 80% from less than $10 an ounce to over $17.50.
During QE2, silver shot up a further 50% from $25 to $37 between November 2010 and June 2011. By the time QE2 ran out of steam, silver went on to tip the scales at $44 in August 2011.
Gold on the other hand only managed a 46% uptick during QE1 and a 40% lift through QE2 even when it topped out at $1900 last September.
In all, silver prices saw an astounding 340% gain in less than three years while gold saw less than half that number during the same time span.
But this should come as no surprise to people familiar with the gold and silver markets in recent history.
During the decade-long metals bull market of the 70’s, gold prices increased over 2,300% when it reached a high of $850 – an impressive feat indeed.
Silver on the other hand, exploded for over 3,200%!
Facts don’t lie.
Not only does silver offer a far more affordable entry point for investors, but when it ascends up the price charts, the growth is astronomical.
Don’t get me wrong, I’m still bullish on gold.
But perhaps what makes silver a more superior play in my book is its many practical applications.
You see, in addition to its ability to preserve wealth and hedge against inflation during volatile times (much like gold), it actually offers numerous uses in the real world as well (unlike gold).
From antibiotics to Zippo® lighters, applications for silver literally run the length of the alphabet.
It’s a soft metal that’s not only ductile and malleable, but is also highly conductive of heat and electricity.
So in contrast to gold, which offers little to no intrinsic value (edible gold flakes, anyone?), silver is a valuable commodity with equally valuable industrial demand to boot.
With Strong Demand And QE3, Silver Is Set To Soar
With the Fed’s latest expansion of its balance sheet, you’ve just given silver a jetpack with fuel to last for years.
QE2 capped bond purchases at $600 billion which roughly equated to a rate of $75 million per month and lasted 8 months.
It was a godsend for silver.
For QE forever, the Feds look to be more determined than ever to see economic indicators like job growth and housing in this country return to a health, sustainable level before deciding to halt the program – which is expected to run to the tune of $40 billion per month.
Some economists are predicting that bond purchases during QEforever could reach $2 trillion when it’s all said and done.
You might as well write the silver bugs a blank check.
Now where silver prices are ultimately headed, nobody knows for sure.
But we’ve seen it hit $50 in 1980 which, if adjusted for inflation would be about $140 in today’s dollars.
Who says lightning can’t strike twice?
The three QE programs are certainly increasing the likelihood of that happening.
If you missed the silver boat on the previous two rounds, then this third time will definitely be a charm.
The time to jump on the train is now.
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