Share By Melissa Pistilli-Exclusive to Silver Investing News

Despite gold‘s stellar performance, the silver price seems to be uncharacteristically lagging its yellow cousin in performance, bringing the gold/silver ratio to nearly 64:1 the last week in October.

The drag on silver can be attributed in part to normal seasonality and downward pressure on industrial metals. Those who follow the US markets religiously know that October usually brings some heavier selling pressure on stocks and commodities.

But this year, the pressure is compounded by lingering economic fears still gripping many investors. Industrial metals like platinum, copper and nickel have also experienced price declines over the same period as silver.

In a recent Bloomberg poll of investors and analysts in the US, Europe and Asia, a mere 31 per cent said they feel investment opportunities are out there, compared with 35 per cent in July. Bloomberg cites US investors as the most leery with over 50 per cent in defense mode.

“The doubt and the pessimism just won’t go away,” said James Paulsen, chief investment strategist at Wells Capital Management. “They’re still so shell-shocked by what they went through despite the improvement in the market and the economy.”

Some analysts believe the latest run up in commodities prices since March may be a part of a bubble soon to burst. “Commodities are at the centre of this echo bubble . . . [and are] in substantially overvalued territory, way above fundamentals,” said Ruchir Sharma, investment manager at Morgan Stanley.

The commodities rally is a result of investors hedging against the dollar by buying commodities, said Sharma.

The end of October brought sharp declines in stocks and commodities as fear continues to dominate the markets keeping all but the most speculative investors out of the game.

“The boomerang effect that hit markets this week, driving deep sell-offs in stocks and commodities followed by swift rebounds, showed broad shifts in sentiment about fear and risk still dominate a year after the financial crisis peaked,” said  Marketwatch’s Laura Mandaro in a recent article.

The dollar’s downward spiral this year has helped propel commodities higher as they become cheaper to buy. As the dollar turns around as it has recently, those assets have begun to shake off that added value.

It would seem the most cautious of investors have left the markets open to the whims of their risk-loving counterparts, leading to what Kitco’s Jon Nadler rightly calls “aggressive speculation.”

“What fundamental conditions do you know of – for example in oil- that have changed dramatically since last December, when oil fell to $30 a barrel, from its $147 pinnacle?,” asks Nadler. “We can, still, only call all of this fund-related activity as, premature…speculation.”

While inflation fears and aggressive speculation continue to dominate the market, we can expect to see further fluctuations in precious metals prices. Gold is expected to continue to rise in the future, bringing silver along for the ride.

Just today, gold hit a record $1,087 an ounce on news that the India is dumping its US dollar assets for gold with a purchase of 200 metric tonnes for $6.7 billion from the International Monetary Fund.

The action marked “the biggest single central-bank purchase that we know about for at least 30 years in such a short period,” according to Timothy Green, the author of “The Ages of Gold.”

Gold is reacting to the sentiment that more central banks, like China, may possibly choose to move out the dollar and into safe-haven gold as US debt grows and the dollar weakens further.

“The fall in the US dollar seems to be pushing all the central banks to strengthen their portfolios with gold,” said N R Bhanumurthy, National Institute of Public Finance and Policy professor.

Gold’s surge sent silver soaring nearly 5 per cent to $17.29 an ounce on Tuesday. The gold/silver ratio is still nearly 63:1, an indicator that lower base metal prices are still tugging downward on silver prices.

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