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Gold (AMEX: GLD) and Silver (AMEX: SLV) ETFs are on a big momentum run.
Chart Courtesy of StockCharts.com
Inflation is back, and the usual hedges are also moving higher, with gold and silver exchange traded funds attracting big bucks on a daily basis.
The I-shares Silver Trust, the more volatile of the two, made a new high on 2-26, and is up 64% since August 2007.
Meanwhile the Streettracks Gold Trust is up 43% over the same period of time.
And no wonder, the price of oil is up some 50% over the same period of time while China and other emerging economies have continued to grow at double digit rates in many cases.
What we're seeing now, it seems, is the early transition from a low inflation environment to a high inflation environment, which may eventually be as bad as the period in the 1970s where even Europe and the U.S. could have double digit inflation rates.
That would mean that at some point, central banks will have little choice than to raise interest rates, rather than lower them for the purpose of preserving economic growth.
For commodity investors, though, the real question is how much of that kind of scenario has already been priced into gold, silver, and agricultural commodities.
For now, momentum is the key to trading profits. But as with any momentum run, when it ends, it will be pretty ugly.
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