Gold and silver offer the best price recovery upside

Precious metals are the best placed asset class for a quick recovery and their recent price weakness is a great opportunity for those burned in the global stock market crashes to make their money back.

How is it possible to be so very positive about the outlook for gold and silver when the capital markets of the world are collapsing?

First, we have to explain why gold and silver prices have fallen recently. That is easy. Commodity funds have been selling off all their holdings, and that includes gold and silver.

So precious metals are a victim of the truth that, in a real crash, everything is for sale in a dash to cash.

However, this selling is largely paper in the commodities futures market. There has been little recorded selling of physical gold or silver. On the contrary, bullion coins are sold out and commanding huge premiums to the spot price established in the futures market.

Retail mania

Retail investors are in no doubt that gold and silver is what they want to hold in these troubled times. It is the hedge funds that are selling and stopping gold from rallying.

Once the hedge funds have finished their manic deleveraging - which means literally selling the family silver in a probably doomed attempt to stay solvent - then the retail investors will be in command of the price of gold and silver, and that just has to be incredibly bullish.

Let us remind ourselves of the simple and powerful logic behind these retail purchases.

Central banks are injecting trillions of dollars into the global economy, and for once even a consensus of economists agrees that this just has to be highly inflationary.

How do you maintain the buying power of your money in a highly inflationary environment? You have to own something that has a fixed supply and acts as a currency. For several millennia that has been gold and silver.

Buy gold!

So the logical thing to do is to wait for precious metals to hit rock bottom - which surely can not be far off today's price - and then buy, buy, buy, if there is any supply left for sale.

Better still, for a leveraged-play on the rising price of precious metals buy the stocks of producers, or even better the exploration companies. These have also been battered down in price by the collapse in global stock markets.

From current price levels gold and silver stocks are going to deliver unbelievable returns, and even long-term holders who presently feel aggrieved by recent price falls are going to be delighted with the outcome.

Retail investors queuing up to buy gold around the world have got it right.

They are like the people who were first in the queue for the housing booms of the 2000s. But the smartest investors will be those who winkle out the precious metal stocks with the biggest upside potential. Expect to see Warren Buffett revealed as a big buyer!

See also:
Ten top tips for surviving the currency crisis
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