Silver posted another impressive weekly gain as it climbed a further 5.5% to reach a high of near $39.30, just short of resistance at the two and half month high.
The gold:silver ratio continues to decrease, falling to around 40.9 from 42.2, again highlighting silver‘s outperformance of the yellow metal.
Wednesday saw the majority of the weekly appreciation following comments from US Ben Bernanke where he hinted at the possibility to expand the stimulus to support the economy should the weakness continue to broaden.
China is facing its strongest inflationary pressure in three years as consumer prices rose to 5.5% in May, prompting calls for further interest rate hikes (China has raised rates four times since October 2010). The rising inflation in China has many gold and silver traders poised to see what happens next as, historically, precious metals are viewed as a safe – haven during periods of high inflation. Should China‘s inflation problems continue many analysts predict further upside for silver and gold.
However, certain investors believe commodities are in a bubble. Gary Schilling, President and founder of A. Gary Shilling & Co, draws comparisons between China and Japan in the late 1980s and believes China is in for a hard landing which may “prick the global commodity bubble.” A confident Shilling also added, “Talk about bubbles! If commodities haven‘t been in one, I don‘t know what a bubble looks like. And I‘ve studied a lot of them over the years and concentrated on predicting their demises.”
From a technical point of view, it seems very possible the re-accumulation of silver seen in the $32-36 price range to have established a new key low from which the price is expected to swing much higher.
The international political system is changing, and a new international monetary agreement must be reached, which should enforce some form of reconciliation of the global sovereign debt crisis, and the bubbles from the housing markets. Until then, the safest bet is to simply continue accumulating metals. The longer the problem remains unresolved and governments of the world continue to take no action or actions that do not bring about meaningful reform (additional stimulus similar to previous stimulus), the higher the end of the commodity market will be.