I'm not an investment advisor and I don't trade in commodity silver. However, the vast majority of the questions I receive are from readers wanting to buy or sell sterling flatware. Many of the recent questions have posed something like the question in the title of this article. So, it's worth talking about.
The first question to ask is why the Dow Jones Industrial Average (DJIA) hit a record high last week, especially when the U.S. economy has been so slow to recover. I think one reason is because there is less uncertainty in the market these days. The economy may be slow to recover but corporations have been doing pretty well. Investors in the stock market do not like uncertainty. Now that uncertainty has cooled, investors seem prone to invest in stocks once again.
To help confirm my theory, I looked at the volatility index, or VIX, that is one measure of the volatility of stock markets. A high relative index number means the markets are more volatile. In the latter part of 2008 when markets were in turmoil, it was common to see the VIX above 60 and on at least one day, it hit 80. This has more meaning when you compare these numbers to recent levels of the VIX which have been in the 12 to 14 range. Reduced uncertainty leads to less volatility and, in the recent few weeks, steady gains in the DJIA.
What's one major reason people invest in gold and silver? I contend that a major reason is uncertainty. When we don't know what's going to happen in the world, we often invest in precious metals. I believe that uncertainty affects the stock markets and the precious metals markets differently. As uncertainty decreases, stocks may go up and precious metals may go down.
This is a gross oversimplification of both markets but it makes a point that does deserve attention.