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Silver Shines at a Multi-Month High

NEW YORK (TheGoldAndOilGuy.com) --The price of silver reached a five-month high this past week. Investor interest seems to have been rekindled in both gold and silver as belief in financial markets increases that the latest round of monetary easing from the Federal Reserve -- QE3 -- will soon be on its way.

Many investors had largely stayed away from silver in recent months after some had got caught up in its volatility. Silver had touched a 30-year high in April 2011 before plunging 35 percent in a few short weeks.

Now the volatility is back -- but on the upside as prices have climbed more than 20% in less than a month. The gains have outpaced that of gold, which rose roughly 10% during the same time frame.

More important for investors, the ratio between the two precious metals has moved about 10% in silver's favor since mid-August. This is the first time silver has outperformed gold since the start of 2012.

For non-futures investors, the two precious metals can easily be tracked through the use of exchange-traded funds. The most liquid ETFs for the two precious metals are the iShares Silver Trust (SLV) and the SPDR Gold Shares (GLD), respectively.





You can take a look at my long-term outlook analysis from last week here.

Some may wonder why has silver outperformed gold in the past several weeks? The answer goes deeper than just confidence that QE3 is coming soon, but it is still rather a simple one.

The sharp rally in silver was fueled largely by short-covering. That is, some investors (hedge funds, etc.) had made rather large bets that silver would continue falling and were caught off-guard by its recent rise.

According to data from the Commodities Futures Trading Commission, the silver market during the week of August 27-31 saw the largest amount of short-covering since May 2011. At the same time. Bloomberg reported that hedge funds were the least bullish on silver in almost four years.

It is unknown for how long silver will outperform gold. But even some long-term fundamental investors such as legendary commodities investor Jim Rogers has said he believes silver right now is a better investment than gold.

Stock quotes in this article: SLV, GLD 

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