Precious Metals Will Depose Cash from its Temporary Throne

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Once the hedge funds stop selling, then gold and silver prices will rally, and the rush out of cash and into precious metals will do something pretty spectacular to the price. Gold and silver stocks, languishing at a 40-year low, should jump and deliver phenomenal performance for new investors and repay the patience of long-term holders.

...There are some very good reasons to worry about a large cash position.

Quite apart from the contrarian argument that the crowd is always wrong, you have to consider what is happening to the supply of cash. We know that with the sell-offs in global capital markets there is plenty of demand for cash, but what about the supply?...

There is an absolute tsunami of money coming into the system. What happens when the supply of something exceeds the demand? The price drops. And that is exactly what is going to happen to the US dollar - the authorities are about to inflate away their debt problem.

...I wonder how long it will be until cash is deposed as king of the investment world? My guess is that it will not be long after the sell-off ends. How long will that take? It could be at the end of the year as the hedge funds attempt to square their positions, or it might be next spring after another lurch downwards in stock prices...why have precious metals taken so long to claim their crown in this financial meltdown?

The straight answer is that hedge funds have been selling assets across the board and turning gold into dollars, or at least the paper gold of futures contracts into greenbacks. The physical demand for gold and silver has been growing strongly all the time, hence the silver coin shortage and the $3.5 billion Saudi gold purchase.

Once the hedge funds stop selling, then gold and silver prices will rally, and the rush out of cash and into precious metals will do something pretty spectacular to the price. Gold and silver stocks, languishing at a 40-year low, should jump and deliver phenomenal performance for new investors and repay the patience of long-term holders.

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