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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.

Buy-to-hold

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.

$300 silver?

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.

Posted on 25 April 2011 Categories: Gold & Silver

5 Comments posted by readers:

Comment by Jeroen - 25 April 2011

@Peter, Did you change your mind lately about ETF’s or do you still think they are perfectly safe and as good as the real thing? I remember a discussion where you were very convinced about the promises of those ETF funds… I refer especially to SLV now.

Ed Note: I really don’t think there is much with with Barclays’ SLV for the average investor.

Comment by Bill near Slidell - 25 April 2011

@PETER
Silver keeps going up and people are going to start calling you Peter Nostradamus.
Some old fellow was on CNBC last week claiming that all the ETFs were a big potential time bomb. He claimed that under the right conditions, they could tank the entire stock market. I think he said that the reason was that they had multiple claims on the same assets, so a sell off would collapse everything. I think he was on CNBC’s ‘Squawk on the Street’ and sounded like he knew what he was talking about. As usual with that show, Mark Haynes said, “I wish we had more time to discuss this, but we have to go.” I need to go find the clip on the CNBC web site.
They are getting ready to sanction Syria. I see BIG trouble brewing over there in another couple of years.
The way the US dollar is falling, US exports will take off next year.
Professor Roubini has an interesting article on China on the Al Jazeera English site. He sees big trouble in a couple of years.
Finally, for all you space geeks, check out the guy who created Pay Pal, Elon Musk’s, rocket company, SpaceX. He is building his own Moon rocket called Falcon Heavy. Elon Musk claims it will fly in early 2013 from Vandenberg in California. I wouldn’t bet against him. He has already launched & recovered the world’s only private space capsule from ORBIT. That isn’t an easy or simple task. And he is doing a conceptual design for a rocket 1.5 times as large as the giant Saturn V. It will need water transport, unless it is built at the Cape. A rocket that large can only be for sending people to Mars, or building a Lunar base. He has hired the finest experts from the auto and aircraft industries to mass produce rocket engines and components using robots. It shows you what a determined genius can do, bad economy or not. He said he might eventually go public, but only after several successful flights. He didn’t seem in a hurry to do that. (Yes, I’m a space geek, because I remember racing the Evil Empire to the Moon during the 1960’s. Unless you were alive back then, you can’t imagine what it was like. In the USA, it was viewed as nearly a life or death thing. If the commies beat us, they would undoubtedly take over the world! We would need to move underground, and build an ICBM on every block. I can remember exactly where I was when the news about Sputnik came over the car radio. I was 6, sitting in the back seat of a 1954 Chevy on Lakeshore Drive, but can still remember thinking, ‘I don’t understand it, but it must be very BAD.’ My Jesuit educated father told me not to worry, because Russia could NEVER beat the United States.)

Comment by James M - 25 April 2011

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/25_London_Source_-_Asian_Buyers_Will_Take_Silver_Over_$100.html

KWN’s London source has updated King World News on the massive Asian buyers which have been accumulating gold and silver. The London source stated, “$3 to $4 dollar days in silver will become common, from now on $2 days will be considered slow. There will be a great deal of volatility going forward, but more often than not silver will close near the highs.”

April 25, 2011

The London Source continues:

“Right now the silver shorts are being flushed out in Asian trading on light volume and we have options expiration ahead of us. 38,000 silver contracts are in the money and the question is how many will ask for delivery?

As I mentioned to you previously, the Asians have also been taking delivery of silver out of SLV and will continue to do so. You have to understand that these Asian buyers are planning to take delivery of all of the available physical silver they can get their hands on and will continue doing so for the foreseeable future.”

When asked at what price the Chinese will stop buying silver the London source replied, “The Chinese want out of dollars and they will continue aggressively purchasing both gold and silver in order to diversify. They don’t care whether silver is $50, $60 or $100, they will just continue accumulating. The Chinese may be patient buyers, accumulating on weakness, but you can bet that their relentless purchases of physical silver will eventually push the price well over $100 an ounce.”

Comment by James M - 26 April 2011

A comment on main stream thinking:
Yahoo finance is running an editorial piece today: ‘Silver expected to reach $50 an ounce soon’

Quote: =>
“The dollar index, which measure the greenback’s value against a basket of currencies, has fallen more than 6% in 2011.

A number of factors are driving investors away from the dollar and toward safe- haven investments such as gold and silver. Among the reasons are deficit problems in the United States and Europe, and rapidly rising food and commodity prices, especially in emerging markets.”
End quote

It jumped out at me that silver is mentioned as ‘a safe haven investment’. Post October ‘08, gold fell $200, from $900 to $700, a drop of 22%. During the same period, the S.&P. fell 56 percent and the Dow about 53 percent. My question is, how safe do you feel in silver right now, let’s say if the equities market were to tank, and give up 20% to 40%. If the correlation to 2008 held true, gold could be expected to drop by say 10 to 15%. Given a sharp reversal in gold price, where do you think silver might bottom out? I’m guessing the $30 to $33 line of resistance is a good bet. Would you still consider silver a safe haven investment modeled on that hypothetical? And how likely is such a scenario to play out this time, if major correction in markets occurs. What could be different this time is a weakening dollar. USD might not act similarly to 2008, as the absolute safe refuge of choice. What do you all think?

Ed Note: You need to subscribe to our monthly newsletter for more detailed analysis and then you can make your own mind up on this.

Comment by Andy - 27 April 2011

Anyone here see the APMEX news of buying Silver $3 over spot because they were out of Silver.

http://www.zerohedge.com/article/apmex-starts-reverse-inquiry-seeks-buy-any-quantity-silver-clients-3-over-spot

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