With the end of the second quarter it is important to take stock and review how various assets have performed so far in 2009.

As per the tables below, gold and particularly silver have continued to outperform the vast majority of equity markets in the last six months. This is the particularly the case in terms of dollars (gold up 5.8%; silver up 21%) and euro (gold up 5.15%; silver up 20.3%). Thus gold again outperformed the benchmark S&P 500 (up 1.8) even after equity markets sharp rallies in the 2^nd quarter.

Sterling’s recent strength has  meant that gold in sterling (-5.7%) has slightly underperformed the FTSE (-2.8%). While silver has again outperformed the FTSE (silver in sterling up 7.9% while the FTSE was down 2.8%).

At the start of the year we contributed to the Reuters Precious Metals Poll and the Bloomberg Gold Survey  and we believed that gold and particularly silver would continue to outperform equity markets internationally in the medium term. This has indeed been the case.

Nobody has a crystal ball but given the still deteriorating global macroeconomic situation, the increasing risks of a decline in the value of the dollar and the increasing risks of inflation and potentially virulent stagflation, we continue to believe that this outperformance is likely. Especially as silver at less than $14/oz today remains well below its average price in 1980 of some $20/oz and less than a third of its nominal high price in 1980 of over $50/oz (some $130/oz when adjusted for the significant inflation of the last 29 years).

Investments (including gold and silver) can fall as well as rise and the usual crystal ball gazing suspects continue to make predictions despite their dire track record in recent months and years. Those again attempting to call a top or a bottom in individual asset classes are engaged in a fool’s errand as it is absolutely impossible to do so.

It remains prudent to be diversified across asset classes and geographic regions with a healthy allocation to precious metals in these very uncertain economic times. It is not a case of a simple black and white choice of gold versus equities rather both as well as allocations to cash, corporate bonds and inflation linked government bonds are necessary in a portfolio if one is to be properly diversified and prepared for the coming years.