$50 Silver: Bubble or New Norm?

Along those lines ... a lengthy, yet sobering read.

http://www.mineweb.com/mineweb/view/mineweb/en/page103855?oid=126102&sn=Detail&pid=102055

If I had to pick a currency, I would go with the Swiss Franc, and then the Yuan, but I would pick PM's every time they're on the table.

 

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Consider this. If the USD defaults again, Switzerland will no doubt take a huge economic hit. So what if that country decided to seize all American accounts in their banks and refused to do redemptions for Americans to compensate for it? This is the problem with holding fiat.

 

It may be possible, given that Governments make the rules to
suit their survival as do Corporations. :devil:

Their may some time soon come into play
a Very Simple Rule.

If You Do Not Have Possession Of It You Do Not Own It

 

Silver hit a big downdraft on the open Sunday night ... dropped over $4.40 down to $43.50 ... this might be our correction finally!

I wonder if someone liquidated a huge silver position and with the thin volume on a Sunday night, the price just fell off a cliff.

A $4.40 per ounce drop in silver would be similar to a $150 an ounce drop in gold.

Already silver is starting to climb out of that hole, back up over $44 now.

 

Now that's funny right there

 

I don't know what caused that SILVER $4.40 drop but that's not the correction I think everyone is looking for. A $10 to $15 dollar fall would be more like it. But I do not see what could case this in the near ( six months) future. I think silver will be back to $46 or higher this week.

 

Where did you come up with those figures? In 1970, gold was officially $35/ounce (but closer to $40 on world markets), while silver was around $1.50, for a Gold/Silver ratio of approximately 26:1. If both metals were indexed to the inflation rate, then, everything else being equal, silver should be at approximately $57 if $1500 is a reasonable price for gold.

 

Using that particular legal definition, gold is worth $42/ounce. (Check the Federal Reserve balance sheet) This would make silver worth $1.61. The point being there is no relationship between gold & silver anymore.

 

For those that are interested - my contract price for processed steel scrap delivered to the mill was down 3 1/2 % in April and all indications are it is going down almost 10% this month. Can't say exactly cause I haven't finalized any contracts for May.

 

Yes, gold and silver are different markets.
And while Uncle Sam calculates gold in his reserves as being worth $42.22/ounce, he has to pay a lot more than that to acquire gold for his bullion and commemorative coin programs.

 

This has to be one of my best calls ever; especially considering I wrote this with silver over $49 an ounce. Silver reached $35.75 today. So glad I dumped out of my paper silver -- most I sold with silver over $49, the rest I sold when silver broke below $47. I am continuing to add to physical silver positions (ASEs). I think $35 could be a good support level, so I will continue to buy lightly in here. My hoard of silver coins has a cost basis between $21 and $24 an ounce (I really should figure that out exactly). So I am not worried -- keep dropping and I'll buy more coins!

The CME is really leaning on silver ... they keep raising margin requirements. It's pretty clear that the selling of the ETF's SLV and AGQ are really driving prices down. A lot of speculators in paper silver are panicked -- and when there is panic in the air, it's typically time to buy. AGQ, the double long silver ETF has dropped from $380 down to $190 losing half it's value in 10 days (does that look like a possible buy?). Both SLV and AGQ pushed though the bottom of the "bollinger band" -- basically a statistical measure of price movements. When prices push below the bottom of the bollinger band, it's a sign things are very oversold.

It's also interesting that it's not just silver that's dropping: so are stocks, grains, oil, & just about everything. It's a classic risk off trade.

In any case, come this Fall, I think we will be right back to $50. There are still shortages of physical silver out there. I bought two rolls of ASE's from my local dealer, but they cannot deliver until the end of the month.

 

Even a broken clock is correct twice/day.

 

So where do you guys think the bottom is going to be? I thought silver was going to stop falling around $35, but with how fast it has been dropping I'm beginning to rethink that number. To me it looks like silver is going to be bottoming out at high to mid $20s next week.

What are your opinions?

 

Can someone please explain to me how you are valuing the price of silver? I understand that there are industrial uses that provide a price floor for silver but that is probably closer to $5 (2005 price, before the economy blew up) and not $50. If that is the case, that should be your base price when supply/demand are in equilibrium...

Unless you get a cash flow on the asset (like a stock, a lease, or a bond yield), I don't really know how you can value silver. I am not sure that anyone here could give a defensible valuation case for any price above production use. Flight to safety, maybe. Intrinsic value, not likely. It is simply a case of "I think the next guy will be willing to pay more for it than I did".

 

I think the only thing to use is cost of production. For primary silver mines, it's probably an all-in cost [not cash cost] of about $20-25. I know most silver is produced as a byproduct, but without the primary silver producers there would be a shortage, so I doubt that the price could remain below the cost of production for a long tme. The old $5 level was only possible because some large inventories were being liquidated. That's over now.

 

Kifeter, I hear what you are saying. The speed of this move downward has been breathtaking. I think you might be right that silver will overshoot on the downside. I also thought that $35 will be a good support level, however I wouldn't be that surprised after this collapse, if it sold down closer to $30.

If you are looking to build a larger silver position, I would try to pick up physical silver on this sell off ... maybe buying a bit in here around $35 ... and picking up more every time it drops another $2 to 3 an ounce. Tell you one thing though ... In the high 20's, I would go very long on paper silver in my retirement accounts again. I intially said I would do that at $35, but the speed of this decline, along with the marked selloff in all the risk-asset markets is making me more cautious.

I still have a big silver position in coins which I bought for long term (retirement), so unless the U.S. adopts a hard money strong dollar policy, I am not selling that.

 

Good Point. So let's say there is no replacement good at $25, that creates the floor. At $35 with a swift momentum shift and probably enough to shift the 30-60 day moving average, are you a buyer at 40% over fair value (spot = $35 at time of typing). Note: I bought at an average spot of 12.50 (ASE) and unloaded pre-top at $33. Kicked myself but still not a bad trade.

 

I would say cost of production on primary mines is the only place to start as well. It has to be assumed long term it has to resort back to that number, but short term it can do anything. My main concern about using this as a base is the sheer quantity of "investment" silver that has been sold the last few years. If the "investors" find a hot new investment, I feel the cost of production could be breeched short term with this product coming onto the market. On the flip side, with some more scares to the dollar and declining stock investor sentiment, I could see it retrace its earlier prices.

Right now its a psychology driven market more than fundamentals, which is what makes me nervous. I don't like participating in a market where human emotion is the key driver. If you are a long term buyer, just DCA into the declines, buying $XX a month, (NOT xx ounces), but if you are a market player good luck.

Cloud, you can now attack DCA.

Edit: Btw Cloud, do you have any kind of figures detailing COP for primary mines? I am not attacking your number, just asking if you had a source I could use.

 

Cloud, you are not a fan of DCA either? In my opinion, "rule of thumb" often ends in disaster. I will pick my entry points. If I miss, I move on. Not to mention the economy does not cycle, it is sporadic at best with an occasional offering of scenario elimination to tilt odds.

Psychology driven market is not what I would call this. I would call the run up, emotionally driven. This feels perfectly sane to me. New vehicles introduced to enter a market, big names talking up PM (Paulson, Soros, etc), guy down the street buying PM that never had an interest, TV show called "Gold Diggers" (I know this from a coworker, I don't own a TV), etc. etc. Typical signs are/were here. Tread carefully.

BTW, I love PM's. But, I seek volatility (PM's just happen to have that characteristic).

 

Psychology/emotion, similar to me. I think we agree, though I suspect there is hedge fund activity behind the scenes as well, which we will never know about until much later.

DCA to me, for all of its faults, does have a huge advantage in forcing investors to do something they don't want to. Most small investors have the horrible habit of buying high and selling low. DCA forces them to buy into a falling market, a bottoming market, etc. This is something psychologically they simply do not want to do. If you want to pick your entry points fine, good for you. I am simply saying most small investors pick their entry points high, when they are excited about a market, and their exit point low, when they are disheartened. This is the greatest strength of DCA to me, to stop this poor decision making. You have seen this, most small investors when choosing a fund will automatically choose the one with the highest return last year. This is almost the last thing you want to chose a fund on.