Gold and Silver Set to Rally Due to Unbacked Paper and Global Shortages

Online, July 30, 2013 (Newswire.com) - Gold and silver look promising in the long run do to the massive amount of paper not backed by physical metal. According to the Reserve Bank of India, the traded amount of paper linked to gold far exceeds the actual supply of gold in the world today. The volume on the London Bullion Market Association OTC market and the major futures and options exchanges is more than 90 times that of the underlying physical market. These figures translate to a massive amount of paper being traded relative to a very small amount of physical metal to back it up.

With gold prices dropping to recent lows far beyond investor expectations, the global appetite for physical gold has increased spurring a massive trend towards hoarding the yellow metal, especially across Asia where gold is still revered as the ultimate form of wealth, investment and status.

All of this hoarding will put tremendous pressure on paper promises, and despite recent regulation attempting to limit Asian buying, it is becoming apparent that a massive shortage is imminent which could trigger instability in global financial markets.

This instability is also being seen in the silver market, and currently demand for silver is also on the rise. Trading below $20 per ounce, silver may well experience similar problems. Unlike gold, demand for silver is on the rise due to its industrial importance. An integral ingredient in thousands of consumer products and with governments planning massive solar installations, the demand for physical silver is expected to rise considerably pressuring the global supply and potentially driving prices through the roof.

If Japan and China follow through with their plans to develop solar plants, they could consume up to 11% of the global supply over the next three years for this application alone. Silver used in solar panels is not recyclable, and therefore disappears from the world's stockpile.

All of this adds up to gold and silver markets that will be very unstable in the short term, but as demand increases and supply dwindles, the long term outlook is very positive.

Corolla Financial analyst Adam Taylor believes that both gold and silver belong in every portfolio. "Though I wouldn't recommend parking a tremendous portion of wealth in precious metals, it is apparent that as a long term play both gold and silver are very promising. The timeline is not yet clear, but I still believe that gold will pass $2000 per ounce, and silver could more than double. This may happen this year, or it could take three years, but all the sign posts are present."