Knocking on the door of $50 silver, so where next?Posted on 25 April 2011 with 5 comments from readers
Just checked the silver price and there has been an amazing final sprint to a decimal point below $50, the 1980 high for this precious metal. Taking out the all-time record high is always a key transition point for any commodity.
Normally you would expect an overshoot once this barrier is overcome. The fact that gold is up 0.5 per cent this morning compared to silver at 4.5 per cent underlines the squeeze that has taken place in the ratio of gold-to-silver.
Silver powers up
Silver is roaring ahead of gold. ArabianMoney would be far more concerned about the sustainability of this silver price if gold were keeping pace. This is very much an exponential leap for silver, not gold which remains in a solid uptrend but not a spike.
It is not implausible therefore to see silver as somehow rebalancing its relationship with gold back towards the long-term ratio of 12-16 times. Indeed, that would imply silver spiking to $100 an ounce with gold hovering around $1,500.
On the other hand, the US dollar is very weak and may be about to reverse direction (click here) and that is almost certainly going to be negative for both silver and gold, and the commodity that has risen most has the furthest to fall.
This week Ben Bernanke gives his first-ever press conference on Wednesday which might be an opportunity to talk the dollar up, while US Q1 GDP figures on Thursday could indicate a much weaker than broadcast economic recovery, and be seen as supporting continued low interest rates.
However, the argument for taking profits on gold and silver is not very sound. It is very easy to get this wrong and miss out on a futher price increases, particularly for silver. Any corrections now could be very short-lived as clearly there is very serious buying demand, and silver is in short supply.
The Perth Mint is closing its unallocated silver account scheme to new business from the end of the week because it cannot cope with the demand, and is substituting a new scheme with higher charges.
There is reckoned to be twice as much gold as silver in global reserves, partly because the artificial suppression of the silver price has meant the use of silver stocks for industrial use as new production has been uneconomic. Now there is a real silver shortage in the world in the face of investment demand that has only just begun to rise.
In these circumstances silver looks sure to fly way beyond $50, and whether it takes a breather for a few weeks or months at this stage will make no difference: $300 silver within 18 months is not an unrealistic target (click here).
Silver is back as a money that cannot be printed rather than an industrial commodity with its price held down by a cartel. Also with most Western markets closed for the Easter holiday today the buying demand is clearly shown to be coming from Asia and the Middle East.
We are happy to share this free analysis with website readers. But we offer far more in our monthly newsletter which this month will focus on silver, and we think we have found the best way to leverage up on the silver price (click here). Having been spot-on with the $50 price move over the past week you might consider us worth a subscription now.