Silver at a 30-month high, should you buy now?
Posted on 14 September 2010 with 8 comments from readers
The price of silver crossed the magic $20 an ounce line yesterday to a new 30-month high, although not quite taking out the previous high of recent years set on March 5th 2008 of $20.64.
This month’s edition of the ArabianMoney investment newsletter investigates the case for buying silver in depth (click here to subscribe). There is plenty of reason to expect silver to outperform gold in a precious metal boom as this detailed analysis explains.
Caveat emptor
The most immediate dilemma for buyers is whether this market high is a buy or a sell signal. The silver chart is not very helpful. This could be a double top, or a step to much higher prices after a classic 50 per cent correction in late 2008 global financial crisis.
ArabianMoney notes that in August the stock market went down while gold and silver both went up, and silver outperformed gold. That might suggest that if financial markets correct again this will not be a repeat of 2008 and that this time precious metal prices will go up as a safe haven in a storm.
The newsletter comes to some interesting conclusions for its subscribers. It also examines how best to invest in silver from a practical point of view. This is a heavy, bulky metal after all.
Adjusted for inflation silver ought to be worth $250 an ounce today just to repeat its 1980 high. It is the most undervalued of all commodities and frankly to see it as overpriced at $20 should be seen in this context, whatever short-term ups and downs do or do not follow.
8 Comments posted by readers:
ok,, so you buy bullion silver in the gulf area,, where do you sell it then? there isnt a secondary market to sell it,,
unless you sell it to the same place that you bought from, for 20%-40% bellow spot price,, and say bye bye to your profit,, as they are also going to sell it for 10%+ above spot…
but if there were a secondary market to,, price would be near spot or at least as near as the primary seller price…
but gold on the other hand,, has that feature in the gulf area… no investor has the mentality for silver,, unlike gold which is treasured by these bedwons
Ed Note: You can trade silver futures on the DGCX at very tight spreads – that’s an electronic trading platform to the highest standards – we are not actually living in the desert here!
@ Hadi:
I was not aware of the huge spreads among dealers in the gulf area; if the Gulf area spreads are 20% to 40%, this is outrageous!!! In the west, and particularly in the US, the retail dealer spreads are typically between 2% to 4.5%. I don’t know what the spreads are in Europe, but one can easily find out.
Here’s an Idea:
It might be possible to establish a business relationship with some US or EUR coin retailers, so that you have another avenue to sell your physical silver whenever you wish. At the present time, a very small fraction of the US population owns physical precious metals . . . but this situation has changed dramatically in 2010 (record high purchases of US Silver Eagles for almost every month this year!). I do not believe that this change is a temporary phenonomen, but rather a secular change in the overall “sea state”, as it relates to investments here in the US.
Obviously, the downside to this is the practicality issue; since silver is rather bulky, shipments of physical silver would have to be made in small quantities.
Should the world economy tank, which I don’t expect, silver could go down a lot more than gold. So don’t get greedy.
What is with gold today? It is WAY up for no bad news? Europe? The Fed saying that they were going to buy Treasuries yesterday? Someone is buying a LOT of gold. The folks on CNBC can’t come up with a reason.
If you do not or can not deal with the physical metal, don’t forget silver ETF, ticker symbol SLV.
Highly liquid, no bulk involved.
@ Bill: Actually, Bill, there’s a lot of demand for physical gold and silver this year. The main reason why gold “happens” to be going up today is due to the fact that JPM and the FED are not actively suppressing it today (but they suppress both the gold and silver futures markets almost every day on the CRIMEX (aka: COMEX). Even with all their active suppression schemes, gold and silver will still go up anyway . . . slowly but surely.
Hinde capital has a set of slides on gold and silver investing; in it, they have an absolutely great quote which citizens of this world should read and try to understand. I’m paraphrasing here, but it’s something like this:
“Gold Wars are the secret but on-going wars between governments of the world, and gold. These actions restrict the constitutional rights of the people. Gold is the vital barometer of the health of a nation’s currency, and the suppression of gold by governments allows them to mask the mismanagement of their economies and of their currencies.” – Hinde Capital
@Eric:
Be very, very careful about investing in GLD or SLV; the Custodians of these ETFs are HSBC and JPM, respectively, who, ironically, hold the biggest shorts on the gold and silver COMEX (does anyone see a conflict here?). At the present time, these two fraudulent banks hold approx. 80% of the 300 million oz of shorts. If this doesn’t bother you, then maybe you should read an in-depth report on how they have consistently raped the silver and gold investors. Go here for more info:
http://www.zerohedge.com/article/guest-post-gld-and-slv-disclosure-precious-metals-puzzle-palace
Bottom Line: There is no substitute for owning the real thing, namely physical gold and silver. The only other silver investment alternative is to own the ETFs that are actually backed by silver, namely PHAG or SLVR. Knowing what I know about JPM, I would never buy SLV. Anyone who does is falling into JPM’s perpetual trap.
http://www.thestreet.com/story/10856739/1/the-truth-about-gold-and-silver-etfs.html?cm_ven=GOOGLEFI
I share your views on silver and gold fully, Ed. I am not naive in regard to investing in precious metals because I am able to watch the spot prices daily and even many times a day if I wish.
Such close monitoring of what is happening to prices from my home computer, together with the facility to sell all or part of my holding at the click of a mouse, means that I am more than ready for any downturn that, as you say, is unlikely to occur at the present time, and has not occurred over the past 10 years, I understand.
Since we now live in a computerised age, it is SO possible to buy, sell and monitor your gold and silver that it seems to me to be silly not to do so.
The computer-dealer GoldMoney will do all this for you, and will store your gold and silver so that you never ever have to take delivery of it. However, the precious metal they are storing for you in either London, Switzerland or Hong Kong is entirely yours so that you have no counterparty risk, as you do with ETFs.
I check prices each morning on http://goldmoney.com/index.html and I am impressed by the speedy rise of the silver spot price.
@Bill:
I forgot to mention that in your post above, the thing that surprised me the most was this statement: “The folks on CNBC can’t come up with a reason.”
You are a rather learned person, yet you watch CNBC, which provides “news” in accordance with what their parent, GE, and the Obama administration, want the American public to know . . . in other words, they do their best to hide the truth at all costs.
Sadly, most other network news media are only slightly better, so I get my news from the UK Telegraph, and from Internet blogs that aren’t afraid to reveal the truth about the US economy.
I actually heard Mark Haines(?) say this last week “All of the gold ever mined, except for that shot up into space in the form of electronics, is still here on planet earth”. He then went on to read from his script how that meant gold is nothing more than shiny dirt, or some such PM bashing. It was shameless teleprompted anti gold speil and proof positive that CNBC is stumping for their masters. Bloomberg is much less biased.