The Devil’s Metal

13 05 2011

That’s one of the names given to silver due to the dramatic oscillations its price has experienced during the last 12 months. Among other names awarded by the metal are piece of s@#!, ball of c@#|* and son of a b!@#*. And it is completely reasonable to think likewise in case you are investing in commodities in order to flee troubled assets like sovereign debt and get higher returns than those offered by equity, given the price of silver has surged 175 per cent from last August to late April this year, peaking roughly $50 a troy ounce before plummeting almost 35 per cent during the following 2 weeks.

Source: Capital IQ

Apparently, this sharp swing in its price has been significantly influenced by the increasingly important role played by Chinese investors in the international exchange of the precious metal, with Shangai Gold Exchange reaching a peak of 70 million ounces on mid April this year.

The issue becomes even more important when you consider the effect that silver prices have on other commodities, which could destabilize the economic recovery at a global scale. High prices on raw materials, though historically have been a good sign of industrial activity recovery, could do no good to troubled economies, especially those from the eurozone’s peripheral area -highly indebted, with huge deficits, no growth and a rising inflation-. Whether it is a bubble on the brink of bursting or not, it remains to be seen; for now, you should only worry if you laid big hopes on companies like First Majestic Silver AG… not suitable for people with a heart condition.

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