Why silver is the top pick for 2011
Posted on 24 December 2010 with 12 comments from readers
Search back in the archives of ArabianMoney and you will find gold as our tip for 2010 (click here). Not bad, the yellow metal gained more than 26 per cent but it played second fiddle to silver as the best bet of the year up more than 70 per cent.
You do not need to be a Wall Street rocket science to know that silver outperforms gold when precious metals go up, and moves down faster in the opposite direction. Last year we listened a bit too much to the worries about silver as an industrial commodity and rather stupidly were put off by the 50 per cent price crash in late 2008, though we did tip silver in April (click here).
Volatility is key
Volatility is the price you pay for performance with silver. That means not checking the price so often that you continually get an upset stomach from the ups and downs. For so long as you end the year well ahead, like this year, you have nothing to complain about.
Going back to basics. Even at $30 an ounce silver is way below its all-time high of $50 in 1980. There is no other commodity on this earth that is worth less now than it was thirty years ago. Indeed, it is hard to think of anything that is priced less than thirty years ago. Most things are five or six times more expensive.
You could have said the same about gold a year ago but it has moved up from its 1980 high of $850 to above $1,400 this year. That it still way below where it ought to be when adjusted for inflation, say $5,000 an ounce.
But silver has even more upside as the gold-to-silver ratio is out of its historical pattern by a factor of three. Now of course there is the question of whether to buy at $30 or pray for a price correction. Well, ArabianMoney made that mistake this summer and the price is up 66 per cent since then.
We certainly feel some price volatility is inevitable. There has been a price spike in the past few months that may or may not go higher. But to expect a much higher price by the end of the year appears a fair speculation.
Fair expectations
For that not to happen the central banks of the world would have to stop printing money, debts and deficits would have to be coming down and not going up, and inflation would have to be under control. We see more crises in 2011, particularly for bonds, not less (click here).
Could an anticipated 10 per cent rise in silver supply buck the market? Not very likely with investment demand taking off like a rocket is it? A Chinese economic implosion is one risk but then again probably just a question of more volatility than a real price crash.
No, the new factor this autumn was the winding up of some huge short positions in silver by JP Morgan and HSBC, and that has taken the price up a step change but there are far higher prices to come in 2011.
12 Comments posted by readers:
I don’t know about silver, but the CEO of the vastly reduced in size, Gulf Oil, Joe Petrowski, (What are the chances of his last name starting with ‘petro’? He tells it like it really is, no sugar coating.) recently said on the CNBC US TV Squawk Box program (www.cnbc.com/id/15840232?video) that he expected oil to go nowhere but up. He said that he had little doubt that oil would exceed $100 a barrel by Memorial Day. He pointed out, as I have way too many times on various web sites, that MUCH higher oil prices WILL CRIPPLE THE ECONOMY. His company still supplies thousands of retail gas stations. He said that he saw the bad effects of the 2008 prices, first hand. He seemed VERY concerned about higher oil prices harming the economic recovery. It is a video well worth watching, even if you are not an investor. Notice how the Wall Streeter takes a dig at him at the very end of the video, after he can’t respond. The Wall Streeters live in another world, but may not for too much longer. A few more tea party folks get elected, and the next bailout will be D.O.A. in Congress.
The oil situation reminds me of the sub-prime mess. Those who don’t have to pinch pennies, can’t relate to $4 a gallon gasoline being a problem because $10 a gallon wouldn’t be a problem FOR THEM. They will be blind sided by the peak oil price hike that will destroy millions of jobs, as normal, poorer folks have to spend more and more of their limited income to get to work from the distant American suburbs. They actually believe that average people can go out and buy $45,000 electric cars right away. Sure, just write a check. I can hear them saying in a few years, “We never thought THIS many businesses would be forced to close.”
MERRY CHRISTMAS, EVERYBODY. Go easy on the booze if you are driving.
Looking ahead over the next six months, silver prices (and to a lesser extent, gold prices) are going to be very volatile. Having said that, it’s tough to make a case for “waiting-to-buy” if one doesn’t own any physical silver NOW.
Buy Some NOW, if You Don’t Have any Physical Silver:
So if your readers who don’t own any physical silver, are interested in getting in on this continuing silver bull market, my advice is to buy a reasonable amount now, and then wait for the coming volatility. Silver may likely go up another 15% before a forced correction that will be triggered by two big “silver shorts” JPM and HSBC.
The Silver “Puzzle” is Now Solved:
I realize that, on this blog and others, I’ve been bashing JPM (and HSBC, too) for their fraudulent silver shorting activity; I also realize that they have been doing this at the direction of the US government, and have often said that JPM/HSBC have been doing us all a BIG FAVOR by allowing us to buy a truly precious commodity at a sharply depressed price.
But let’s look at the big picture here; JPM has the smartest (read: treacherous and conniving!) commodities traders on the planet, and they’ve made a lot of money by shorting silver. But one of the pieces of this puzzle that has remained a mystery has been “how have they been hedging their massive silver short position?”. We now have the answer in this fascinating commentary by Ted Butler, arguably the best silver analyst on the planet.
Chinese Are Taking the Short Side of JPM’s OTC Silver Swaps:
The answer in brief, is in JPM’s Swap Book . . . and you’ll never guess who are the most likely traders that are holding the short side of the OTC silver swaps . . . it is most likely the Chinese Traders! For a fascinating, and “Must Read” commentary by Ted Butler on this topic, go here:
http://www.investmentrarities.com/ted_butler_comentary12-21-10.shtml
“Well, ArabianMoney made that mistake this summer and the price of Silver is up 66 per cent since then”.
“There is no other commodity on this earth that is worth less now than it was thirty years ago”. It’s Correct and after 30 years I’m still waiting to sell my Silver for $50/oz when I’ve bought in Jan/1980. Well IF Silver hit $ 50 or $60 than you’ll wait next 30 years to get moneyback. However if the Banksters want to change the game, Silver price can going even $30,000/oz and Gold even doublle more. OK.
And I’m possitive that ArabianMoney again will make even bigger mistake for timing in 2011,2012 that Silver price will going $320?
Wow, fascinating commentary by Ted Butler ! C’mon.
“Chinese Are Taking the Short Side of JPM’s OTC Silver Swaps”, HELOO what China can doing against JPM, and FED? JPM is a part of the FED brotherhood, and if the FED’ wants they can printed $ 1,000 Trilions within 10 days.
He,he SILVER $320/OZ ? Maybe in year of 2042.
REALITY AND FUNDAMENTALS are different AND DID YOU LEARN FROM HISTORY,ANYTHING”
Could you IMAGINE that within 5 months in 2008, OIL price had slammed 75% down, from $147 to $32/ barrel?
Or “CAN YOU IMAGINE that $250 billion were wiped out just within 20 minutes at MAY/06th/2010 on stock market crash on DOW JONES stock market.
REALITY IS THAT Many of World Mines of Silver can increase production at least 10% very quickly, and we can see for next 5 years even 50% inreased production of Silver if “DEMAND” or price is about $320.
With Gold is opposite and increase of production is very,very limmited.
So next two years will see about 10% increase of production of Silver
and Silver is alredy in bubble teritory because
Gold production cost is $450-$700/oz or avg. ratio 1: 2.5,
and Silver production cost is $3-$5 and avg.ratio is 1: 7.5
Avg. Production cost of Silver in the world is between $3-$5/oz.
I’m waiting for USA,Canada to increase production like 2002 for additional 640 metric Tones of Silver and many European minies from Bulgaria,Poland,Russia,Greece,Sweden,Kazahstan to
increase production about additional 800 metric tones in 2011,2012.
PLUS possible INCREASE of productions in Australia,Japan,Moroco,India,S.Africa etc. for additional 1,000 metric tones of Silver.
He,he SILVER $320/OZ is possible ONLY if the $US will be replaced with new world currency AND will going back again to monetary golden standards. OK.
Than gold should be $60,000/oz. JP Morgan has currently short possitions of Silver and they are selling the contracts to stupid hedge funds.
Well maybe will see pressure till Jan/Feb 2011 BUT the game is over for Silver in 2011,2012.
When China,Mongolia production cost is $3/oz, and many latinos mines production cost is $4/oz and USA,Europe,Canada about $5/oz, than WHO is so STUPID to pay almost 70 to 100 times more than production price($320/oz). Oh yeah High demand,well the last 2 weeks demand is much,much weaker and will see in 2011,2012.
@ Milos:
With all due respect, Milos, the current supply/ demand situation for silver is vastly different when compared to 1980. In addition, the landscape is vastly different, the commodities markets are vastly different, etc. etc.
Sadly, you could not possibly have bought this commodity at a worse time! I remember those days very well, and I can’t understand how anyone could possibly have bought silver back then; I also can’t understand why anyone would have bought oil at it’s absolute peak, either.
I bought shares of SIL at its inception and have been buying Silver American Eagles for years. The best investments I have ever made.
That said,Silver will rise in price because of its various industrial and medical uses. There will be ups and downs with the price of Silver,but in the long run silver will continue to rise in price…………….
PS: I should have bought SLW at $20,but that’s another story………..
milos you also bought silver @ 50 in 1980 do i need to say more.silver is inelastic and its price impacts demand very little.Chindia,brazil and lots of other emerging markets want and need it.Note..re supply.there are few primary silver producers..most are base metal extractors and rising silver will not make them wratchet up silver mining…Demand ie investment and industrial and lack of having external supply ie imf or usa manhattan project bodes well for a number of years.Just the facts folks and make your decision.
@JAS!
Yeah, you should have bought SLW @ $20; I bot it at $5, and bot a lot more at $12. In early October 2010, when the silver market was gettin’ white hot, I sold off about 1/3 of my SLW shares (@ around $27). Looking back, I should have held on for a few more weeks. As David correctly points out (see post above), most silver comes from the mining of base metals (copper, zinc, etc.), and NOT from silver mines.
Silver mining in today’s world is tough business; many of the silver mines require deep mining, and, as a result, the extraction is very costly. In desperation, some of the old, “nearly depleted” silver mines are now being re-opened, but they’ll require lots of new investment & technology to go far deeper than before.
Bottom Line: SLW’s business model is nearly perfect; they have lots of long term contracts with the base metals suppliers to buy the “silver byproduct.” To be sure, I will be buying more SLW on the dips.
david’s comment of 29 December is condensed but is the most astute of all so far.
Silver will be the investment of the decade! It will reach $100 in 2012.
http://www.silver-info.com
@ Maria: It’s certainly possible for silver to soar to over $100 in 2012, given the supply/demand curves, and the fact that there are now no significant “reserves” of this precious metal.
No doubt, demand is going through the roof; on orders of over 20 million oz, big investment firms like Sprott Management and others can’t get those orders filled for at least 8 to 12 weeks.
I’ll be pleased if it hits $100 in 2012, but early 2013 is perhaps a better estimate, especially if the criminal apparatus of the US COMEX-JPM-HSBC-FED-US Treasury remains “well-oiled.”
The price of many goods are not related to the supply cost of them.. but to the public perception of that good at that time.
Gold was 700 USD 2 years ago today it is 1875 USD an ounce.. There is no shortage of production..However the safe haven perception of gold for thousands of years even by financial experts s enough to keep it flying high..
LOGIC doesn’t work when FEAR takes force..
SILVER like gold and diamonds will be considered safe heaven in the coming decade especially with the fall of fiat paper money system trust..
I’m very confused right now,what all I heard from local sellers of silver says buy silver.They even tell you things like .Buy now or you will missed for all time low prices fot it.Now do I still have chance of selling most of my silvers to buy gold for safe haven this coming January of 2012?I neen help please!!!
Ed Note: You need to be able to buy and hold whatever the price movements to get the biggest return on silver – so only invest as much as your stomach can handle!