Dump the US dollar, buy gold and silver!

Gold and silver have delivered impressive gains over the past year, and in US dollar terms are up by around 25 and 40 per cent respectively. The fact that over the last few days that gold and silver have gone up while the US dollar has fallen against major world currencies, will not have been lost on investors.

It matters not much that US dollar deposit account holders earn five per cent not allowing for inflation, and that investors in gold and silver earn zero interest. Or that gold was higher in May than it is now. This annual performance is very impressive against any benchmark.

Chartist theory

And the best is yet to come, according to the chartists. Elliott Wave theorists think gold and silver are now entering phase three of their cycle, the time for the most dramatic 15 to 18 months of market activity.

The first marker to look for is a run past the previous May peak of $725 an ounce and then onward to a new all-time high of $870 which will be followed by a retreat to around $730. But then the real fun starts with $1,600 an ounce the 'conservative' target for the gold bugs with an overshoot to $3,500 forecast by the most optimistic.

Silver will track gold with a vengeance, and as seen this year is likely to outperform in phase three. The market for silver is narrower than gold with limited supply and silver becomes monetized as gold takes off which increases its appeal considerably.

ETFs online

Perhaps the best way to invest in either commodity is to buy the exchange traded funds available for the metals (GLD and SLV, for example, on the NYSE and LSE respectively). Then gold and silver can be held in an Internet brokerage account, completely secure and without the need to carry this heavy metal around.

The link between US dollar weakness and strength for gold is well established, so at the very least a halving of the US dollar would result in the doubling of the gold price. Silver could outperform even this performance as a hedge against the US dollar.

Thus if you have large amounts of cash sat around in US dollar accounts this is clearly a time when placing at least a portion into precious metals as a hedge against dollar weakness would seem a very good idea.

These currency trends tend to stay in place for sometime when established, and the US twin deficits point to further dollar weakness in the short term. The only thing that might interrupt this process is a US financial market crash but that would hasten a diversification into gold and silver for other reasons.