My grandma always used to say: "A real friend is someone who tells you when you've got a piece of spinach stuck between your teeth so you don't go around smiling like a schlemiel."
Well, in honor of my Bubbe, I have to alert some financial experts of this fact: Some of you guys are grinning wide with a metaphorical piece of spinach stuck between your teeth: i.e. the falsehood that Silver is some kind of financial safe-haven.
On this, the following news items from recent weeks paint a very clear picture:
- "Silver enjoys its longest run of quarterly gains in three decades. Lower prices in recent sessions have attracted buyers interested in parking their money in a safe haven investment." (July 1 MarketWatch)
- In response to the question, "Why is silver on such a winning streak," one analyst responded: "Safe haven inflows into precious metals... is the story of silver's silver lining." (July 1 Washington Post interview)
- "Gold and Silver prices ended lower after the initial claims supported hopes that the US labor market is on the right track, thereby reducing demand of precious metals as an alternate investment." (July 9 Commodity Online)
And now for the part where I point out the floss -- err -- flaws in that logic. To wit: In the July 7 Short Term Update (online now), Elliott Wave International's analysts presented the following close-up of Silver prices versus the DJIA since February 2010.
Clear as a bell is the recent near synchronicity of the metal and stocks, thus dispelling the safe-haven notion of silver.
But the bigger truth is that there is no consistent relationship between precious metals and equities. In certain cycles, the two oppose each other. In others, they mix. History shows only ONE kind of economic environment in which their movements are correlated: When an all-time high in optimism fuels a credit expansion so powerful as to send every market higher, and one whose reversal brings all disparate markets tumbling as one.
In his 2002 New York Times business bestseller Conquer The Crash, EWI's president Robert Prechter revealed the first time such a scenario occurred via the following chart: