It seems a lot of you are wondering about silver, and whether it too will drop with gold when the USD makes a run for at least part of this year as I've predicted. To set up some useful comparisons, I've created this combination chart of four assets: gold, silver, copper, and the S&P 500. These are all weekly charts, by the way. Gold chart Gold is the king of alternate-money (a.k.a. precious) metals, obviously. There's nothing quite like it and I don't think I need to discuss its historic roles, both as money and a preserver of wealth. It does have industrial uses, yes, but the dominant market forces affecting the gold price rarely if ever include electronic circuitry manufacturing. As I mentioned previously I feel gold is destined for a bit of near- and medium-term weakness despite the fundamentals in its favor. It's simply overbought right now and powerful forces will be conspiring to ramp up the dollar for as long as they can manage it – for several weeks to a few months at least. I myself am likely to be buying some gold if and when it corrects back to its 50-week moving average. Anything under $1,000 an ounce is likely to be a bargain we won't see again, and the cheaper the better. Gold isn't about to vanish off the earth, so "discount prices" before the next leg of the bull market are something I look forward to. Copper chart Copper is purely an industrial metal: it's hard to build infrastructure without copper wiring or piping. Meanwhile, there's no one talking it up as a monetary substitute as it's simply not rare enough. It's effectively the "anti-gold" within the highly-prized metals category. You'll notice that copper has moved relentlessly in a more or less straight line since bottoming at the very end of 2008. This is in agreement with the "greenshoots" crowd who thinks we're emerging from a recession and the boom times (and associated construction extravaganzas) are just around the corner. Copper is likely to crash long and hard when the speculators driving it ruthlessly upward give up on the global recovery illusion and realize that we're not out of the financial woods yet. When it becomes apparent that new construction is going to be limited and that the real estate disaster (both commercial and residential) has a long way to run, I would not want to be long copper. Of course, the flip side of this is that the Chinese or other interested parties may just use the expected strength in the dollar to add to their copper stockpiles without missing a beat. In that case, copper won't take too much of a hit after all. But realistically, I think that the Chinese are likely to let copper fall off for a bit so they can accumulate it more cheaply later. They've rapidly become the market's dominant buyer and can push copper prices pretty much wherever they want by buying (or not). This is hardly intended to be a detailed analysis of copper's performance, however. I introduced the red metal to provide an industrial metal comparison basis for silver, which is what most of you want to hear about. Silver chart That's because silver is about as 'dual-purpose' a metal as we're likely to find. It's a precious metal that's often called the poor man's gold. Meanwhile it has a wide range of industrial uses too (mostly high-tech, which is likely to keep up demand). Silver is, therefore, a hybrid between gold and copper in terms of market forces. Precious metals advocates will buy (or sell) it based on its prospects as a store of wealth; industrialists will buy (or sell) it based on business needs. And sure enough, the silver chart has parallels with both gold and copper. You can see that since the late 2008 low it approximates the overall shape of the gold chart (see the distinct peaks in March and June 2009). However, silver was unable to set a new high recently, just like copper. In fact, silver's run into some serious overhead resistance over the last month and looks likely to fall back, perhaps as low as its 200-week moving average. So here's my prediction: it's probably going to get whacked right along with gold (unless I'm completely wrong and both gold and silver will continue rising indefinitely without any significant pullbacks whatsoever). What's more, on a percentage basis, silver will suffer more than gold. However, it will bounce back more spectacularly than gold too. The reputed supply/demand (im)balance for silver makes a very compelling case for buying silver during a correction back to its 200-week moving average. Long story short: a new buying opportunity in silver is likely to present itself in the next few weeks and months and the returns could be even better than on gold. I'll look at the fabled gold:silver ratio in just a moment, but first let me quickly mention. S&P chart I included the S&P 500 chart as it's remarkably similar to what we see in copper even though it's losing steam by the week right now and should crash horribly sometime during Q1 2010 or very shortly afterward. So given the chart similarity, is the S&P is being manipulated upward in the face of horrible fundamentals. Is the same true of the other three charts? I don't think so. The central bankers and industrialists would probably love to see gold, silver, and copper at record lows as proof that "the system" is working and as profitable as ever. It's quite interesting, therefore, that we've seen spectacular rises from late 2008 lows in three different metals (one purely precious, one purely industrial, and one hybrid precious/industrial) – all of which are more impressive than the engineered rise in stocks. So regardless of how hard gold, silver and copper get hit in the next little while, their drop is likely to look tame compared to what I expect in the S&P: new lows that make a mockery of the March 2009 bottom. Gold-silver ratio: Good value or not? I've included a longer-term chart of the gold:silver ratio to illustrate the history of how gold has been valued relative to silver over the last 40 years. (The original graphic is taken from the gold-eagle.com website but with the horizontal line at 50:1 plus five red arrows added by myself.) The price of gold itself is also shown in green, giving us a pretty good idea of when a nice signal was generated from the gold:silver ratio.

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