Gold and silver bounce back

published 25 February 2011

The two main precious metals have recovered from their January dips. Gold has reached a seven-week high above $1,400 an ounce, marking a 27% increase over the last 12 months. But silver has doubled in a year, including a 14% jump last week. It has reached $33 an ounce, its highest level since early 1980. Like gold, silver has always been a safe haven from turmoil and currency debasement. Being cheaper, it's often known as "poor man's gold" and tends to "hang on gold's coat-tails", says Jamie Chisholm in the FT.

Silver has had an additional fillip because it is also an industrial metal. Industry accounts for over half of overall demand. As the silver market is about a tenth the size of the gold market, it's a lot more volatile, magnifying gold's move in either direction.

The latest uptick for both metals was due to the turmoil in the Middle East. However, political instability isn't the only reason that "gold and silver still make sense", says Tim Price of PFP Wealth Management. Thanks to governments' desperate efforts to reflate their economies, inflation remains

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a danger.

Meanwhile, the debt crisis in Europe could soon break out again. Demand from Asia is also soaring, says FT Deutschland. Concerns over inflation fuelled a 70% jump in investment demand in China last year, and another strong rise is expected in 2011, according to the World Gold Council. Central banks became net buyers last year for the first time in years. So the precious metals' bull run isn't over.