Spot Gold Prices Shine, But Silver Brighter

Spot gold prices have been surging on post Fed QE2 dollar weakness, but spot silver prices have been experiencing an even bigger percentage pop.

Author:: Andrea Tse
Publish date:: Nov 4, 2010 5:09 PM EDT

NEW YORK (TheStreet) -- Spot gold prices were surging on post Fed QE2 dollar weakness, but spot silver prices were experiencing an even greater percentage pop.

Kitco's Jon Nadler said that the it's been an exclusively dollar-driven market Thursday, not just in silver. Furthermore, he said silver has generally been prone to exhibit much more volatility and outperformance in either direction in the precious metals complex. "In that sense, today's gain is not out of line," he said. "On a day when you have seen palladium gaining 3.6%, copper 2.25%, crude oil 2%, the Dow 1.7% and gold 2.4%, where is the surprise in the fact that silver managed to gain more than one full dollar?"

He attributed these gains to the Fed's $600 billion QE "gift" to speculators in almost any asset class on the long side who are finding attractive plays with the cheaper dollar. Nadler believes the current "euphoria" will eventually wear off. Nadler said Thursday's markets were acting as if the Fed had provided a trillion dollar QE package and more. "That is not the case. There is a growing risk that the ongoing price spikes in various commodities could derail the very recovery the Fed is trying to bring about with its easing," he cautioned.

BullionVault.com's Adrian Ash noted that the gold price is currently only showing a rise from last week's close in terms of the USD and Japanese Yen; it's been flat in Euros, the Sterling and Canadian Loonies and actually slipped vs. the Aussie Dollar and Swiss Franc, he observed. "Silver, on the other hand, is higher for the week -- so far against all major currencies, hitting 30-year highs for pretty much everyone."

He said the reason silver has caught a strong bid is, "in a strong inflation, history suggests it could rise further and faster than gold. Add that to emerging markets' economic strength, and the fact that 60% of annual silver demand comes from industry deserves attention (it's only 15% for gold.)."

Ash said furthermore, silver's volatility makes it appealing to risk-friendly traders and investors, especially "now that the 'hard assets' story, first led by gold bullion, is clearly broadening and deepening on the back of prolonged inflationary policies in the U.S. and elsewhere."

Ash added that on a day-to-day basis, silver is always more volatile than gold. He said on average since 1968, a 1% move in gold has been matched by a 1.75% move in silver in either direction.

EverBank World Markets' Chris Gaffney said silver has been much more volatile than gold this year, doubling the return of gold. "Investors calling into our trading desk here at EverBank are concerned about the high price of gold at over $1,350, but don't seem as concerned with silver trading at $25. I think there is a bit of a psychology at work in the fact an investor feels better purchasing 50 ounces of silver vs. purchasing just one ounce of gold."

The surge in spot silver prices, Gaffney believes, has been due to dollar weakness. "The additional stimulus dollars will be injected into the markets will eventually lead to inflation. At the same time, China and India look to continue their rapid growth, keeping both industrial and investment demand for the precious metals high. It has really created an excellent environment for both silver and gold investments."

New York spot gold prices were popping by $36, or 2.7%, to $1,384.80 an ounce.