Friday, May 6, 2011

Musings On Silver

In the silver market it is frustrating to get good data for some reason so in order to simplify things I will just use the London fix as a basis.  On January 18th 1980 the close of the London markets logged the highest close on silver at $49.45.  Other sources claim prices ranging from $41.50 to 50.50 and that all depends on the source and what you are talking about … intraday, close or other ways to use a spike high on any particular trade.  So for the sake of argument I will just stick to the London fix on 1 JAN 1980 of $49.45

Silver hit $48.70 on the PM fix in London 28 Apr which is the highest I can find recently.  My research is incomplete as of now but that appears to be correct.  So, comparing Apples to Apples (in this case the London PM fix) what we do have is the makings of a double top when compared to 1980.  The price did not get to the $49.45 of 1980 so I have to view this for now as a failed new high on the Monthly chart.  This double top along with the FNH does not bode well in the interim for silver.  This run however does not appear to be finished and in accordance with Armstrong’s cycle model as we complete an 8.6 year cycle June 13. 

As usual, nothing short term is in black and white, and this case is no different.  One, we could have reached a top which will produce a sharp and profound decline in the metal for the time being and two, it could just be a pause and pull back to shake out weak hands.  Taking all the current information I have on the world financial, political and general situation I would have to say that this is the latter.  All the speculation about the why’s are again and always simply “noise” which COULD be as much of a plot to produce some direction in price just as well as the GATA and others claim the manipulation by JP morgue and other banks working to suppress price. Somewhere in between lies the truth and again that isn’t even important. What is important is the world’s condition and perception of that condition that will ultimately dictate a top in PM prices.

One of the things that make you go huh is Eric Sprott selling  large portion of shares in PSLV that his funds owns.  I can only say that many of us have seen this correction coming and Sprott is no newby in the PM's.  PSLV is selling at a premium to the NAV of the fund and most anyone would be raking off a little profit on an almost no brainer pull back and buy it back later and lower for another go at it. Could be that he is buying physical but who knows?  Nonetheless I will be keeping an eye on this one as it has peaked my interest from the beginning.   

So, to keep this as simple as possible, I can see not a single problem with anyone placing 10-20% of investment assets into physical gold and silver.  This is not by design to get rich quick but simply to have something on hand that represents a thing of historic and real value that will not disappear as an asset with 0 value.  Can you lose from this point?  Well, that depends on how long you live. 

Everything is a risk and buying anything at or near all time highs is certainly in the category of RISK.  But given the world situation there is the real chance that we are nowhere near the all time highs in metals.  Then you look at today’s price adjusted for inflation and compare it to the previous high and anyone would have to say we are nowhere near the top in today’s dollars.  Should the dollar continue to decline, then the answer is fairly obvious as to buying gold and silver. 

Soon most people will figure this out and the price today, plus where I think it will go in the next month or six weeks, the PM's may seem like the bargain of a lifetime.  Should June 13-15 produce a low in these metals, I intend to stick more that a toe into the water.  In fact, it is likely I will be up to my neck in the stuff.  But then again, I have a little more tolerance for risk than average and far less time left above ground that most.   

In any event, just some thought on the PM subject to pass along and as always, due diligence on your part is the foundation of your own investment decisions, for which I am not responsible.

Click on chart to enlarge
Silver Weekly 5-6-11


  1. Hi SW
    I really like the new clean lines of your blog. Easy on the eyes.

    I've already stuck my toes in the water this week. I bought some more AGQ. Short term stupid but I think that I'll end up happy. I also bought some physical. Usually it's Eagles but they're still out of stock on this side of the pond so I went for Maples (short term happy, and hopefully long term happy too). Luckily I'd sold a few things and built up a good cash position before the silver tsunami hit (it didn't save me from taking a hit though). I wasn't expecting to deploy any of that cash until late June/July.

    John Embry....
    Massive amount of paper. Shortage of silver......


  2. Thanks, SS I was playing with the styles and found this one a bit easier on the eyes.

    I am more or less procrastinating on silver purchases. Just watching the charts it does seem to be playing out for a possible low in June. As everything seems to be like slow motion it is not difficult to ignore the "noise".

    Don't really think you can go wrong holding some physical metal at this point. Should the decline continue one can always temporarily reduce position size. Thing is the physical market and the cash market could disconnect in that while the "paper" silver may be depressed the supply of the physical is still lacking and the price could be wildly higher. Again, that's the perception games being played in anything coming out of governments as they fail financially.