Silver Trumping Gold as Inflation Hedge (SLV, JJC, GLD)

Since the beginning of the year, the price for copper has nearly doubled, silver has risen by nearly a third, and gold has added more than 20%. Silver is in the process of having one of its best performances in a month.  Gold at $970.00 an ounce has a nice ring to it, but the poor man’s inflationary hedge of silver at $15.50 compares to lows of almost $12.00 earlier this month.

The changes in iPath DJ AIG Copper TR Sub-Index ETN (NYSE:JJC) and the SPDR Gold Shares ETF (NYSE:GLD) both lag the iShares Silver Trust (NYSE:SLV) by more than 10%, although all are up.

The rise in silver prices is tied to inflation fears and some anticipation that the economic recovery will strengthen. Silver has more industrial applications than gold, and thus benefits from hopes for a general economic upturn.  It is also easier for the common man to buy a pound of silver bits than it is to buy an ounce of gold.  Gold prices have primarily moved up because gold is a hedge against inflation and the weaker dollar.

What about copper? Copper is also headed up, but the increase is slower than it has been since January even though copper inventories are falling. The weak dollar has affected the price of copper, but the bigger impact comes from uncertainty about the strength of the economic recovery. Copper inventories are unlikely to begin strong rebuilding until the economic outlook gets substantially more positive.

Both silver and gold function as hedges against inflation and a falling dollar; copper does not. Both SLV and GLD are up more than 1.5% in early trading today, and both are close to the top of their 52-week trading ranges. JJC is up less than 1%, and it is trading nearer the middle of its 52-week range of $17.97-$57.69.

Paul Ausick
May 29, 2009