This is Why NO $50 Silver

Does anyone really believe we are not in a silver bubble? Personally I believe we are about half way through a bubble that started in about 2001 but regardless, I don't think it will end within the next couple of years.

Also, not much recognition here about the role the dollar plays in this. When the dollar goes down, it takes more of them to buy things (like commodities). This is a simple economic point that is getting lost in a discussion that seems to be dominated purely by supply/demand dynamics. The declining dollar and rising debt levels are also driving price (the fear trade) as people look for an investment vehicle to preserve wealth.

Bluesboy65

 

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China just bought another 240 tones of silver in febuary. High demand for silver there... Middle east countrys are thinking of moving into gold and silver to hege the us dollar. No way is silver not going to skyrocket above $50. They can't mine enough to keep up with the current demand. Several years from now, i could see a drop in silver.

 

Of course we aren't. Bubbles are characterized by widespread public participation and the use of leverage. The silver market has neither.

 

On the other hand, energy costs represent as much as 40% of the total cost of mining, and $100+ oil prices make $35 silver much less attractive for new silver mining investment than it would have when oil was $40. So production may not increase as much or as fast as you think.

 

even if there is a bubble, then where will it go up to and where will it settle? If it settles back down near $35 an ounce, then thats fantastic. That means it can go to $100 ore whatever, you have months to cash out as it falls. As you cash out you buy whatever has held up, which many feel will be gold. That is, gold can hit $3,000, silver can go back to 60:1 and be worth $50, but if you cash out at over $150 and buy gold you are still good to go

 

That's an interesting definition but it puts you at odds with market analysts and commentators; just go to CNBC and search on "silver bubble" and see how many hits you get just this month. I know you will never agree but for the rest of you a more conventional definition is more along the lines of "an economic cycle characterized by rapid expansion followed by a contraction" (Investopedia). The point is that "bubble" gets a bad name. Throw "speculative bubble" in there and the evil grows. The truth is that bubbles have always formed in our economy as captial flows from one sector to another. With silver, people are piling in because of supply/demand, speculation, fear, expectation of inflation, expectation of lower dollar ... etc. The PM bubble will eventually burst as these things resolve and a new "market" level will be established.

Bluesboy65

 

I am happy to be on the other side of the trade from CNBC, and you are correct that I reject the definition you use. CNBC completely missed the tech stock bubble and subsequently started calling every bull market a bubble in order not to miss again. But they are looking in the wrong direction. If there are bubbles at this time, they are in the Treasury bond market and [maybe] derivatives market, not silver. But bubbles are relatively rare events, and the normal expansion and contraction of prices in markets do not constitute bubbles. The DJIA rose from 800 to 12,000 from the early 80s to late 90s. Nobody called it a bubble, and it wasn't a bubble. It was just a long term bull market that got a bit overheated. Bubbles are EXTREME events, and not very common.

 

And... what about the gold to silver ratio? I am new to all of this and this is my first post here... but is it true that historically the gold to silver ratio of 16:1 means that eventually silver has to rise or gold will have to fall to even out the ratio?

 

The gold/silver ratio has no significance. It's one of those things that has been repeated so often that people believe this ratio existed for most of history. But if you research it, you will find that it has been the exception, not the rule.

 

The potential increase in silver supply from "renewed production" PALES in comparison to the increase in $$$ supply from quantitative easing. I believe that the price of silver is being suppressed through the paper futures market, but even if you throw that out, silver will track inflation and provide a measure of wealth preservation that dollars cannot. Any crash in the price in silver will come with a welcome crash in oil and food prices. I'm hoping for this alternative, but preparing for a much harsher possibility.

 

This thread reminds me of when gold was $700. If you have been hoarding silver it is time to sell, if you want to hoard silver it is time to buy. Demand and inflation will continue its rise. True much silver is a byproduct of other mining at this time but it is not cheap to mine reserves.

 

We're actually in something like the 9th year of a commodities bull market. The major corrections during that time were manufactured by the commodities exchanges adjusting margin requirements.

As I posted in another thread, I do commodity trading for a living and am paid for my advice, so I shudder at giving away free advice... so I'll just make a statement:

In current (using 2010 base, as I'm not entirely certain of the impact of inflation on 2011 fiat US) dollars, silver has an intrinsic value of $27 troy. This would define a MOS bottom of $20-24 troy, assuming the market gets flooded. Over-reaction would generate additional selling by the hoarders, which would create a theoretical bottom in the $15-17 troy range. On the upside, all value above $27 troy is based upon speculation and futures manipulation. $50 is possible only in the short-run. (Again, we're using 2010 dollars so as not to introduce core inflation into the equation.) Supply is constrained by producers/miners having to pay higher prices for steel and a lack of geologists in the field. That stated, currently supply meets demand, if we remove the silver bugs and ETFs from the equation. The current restriction on supply will create a supply glut once a major holder decides it's time to sell. In the mid-run, European Union VAT restrictions on demand will cause spot prices to settle in the $24-28 range. By this, I mean $24 pre-VAT which would create a producer price of $28 VAT included.

If silver should breach $50, the probable upside price is $68-72. Some newer miners are calling for three-digit silver, which is possible, but unlikely. One of those producers is a stock I'm recommending heavily to clients, only because it's the only unhedged pure-play. As such, it works splendidly as a cheaper alternative to the silver ETFs. Once silver sustains $36.50 for three months, you'll notice miners increasing production. Geologists will be paid a premium for their services, with many being contracted to come out of retirement for consultancy projects. Above $38.25, miners would be producing current supply at a 10-15% loss due to hedging. Above $40, this would balloon to 25-35%, which would force miners to look for new supply to off-set hedging losses. This creates a plateau effect, since the largest miners would rehedge, while the smaller miners (the newest ones to the game) will slowly unhedge themselves. Once this is fully enacted, we'll see ~50-65% of the world's supply unhedged... which will be the start of the end for the hard asset bubble.

 

Personally I think the longstanding bubble (or repeated bubbles) in fiat currency has created an inverse effect on PM's which is just now starting to correct itself. The appearance of a PM bubble IMO is actually the result of the currency bubble becoming unmanageable and allowing PM's to overcome market manipulation.

I think it really depends what time span you are looking at. If you are talking about the last 500 years, 20:1 is pretty standard, and the exception is the last century or so. If you are talking the span of human history, there was once a time in Egypt when silver was worth more than gold because gold was in abundance, and mining wasn't as advanced as today, and that is not the only case. While the following chart makes a convincing argument on the one side, history has shown that the only true constant is change so I do agree but with a grain of salt considering relative consistency since banking became the norm, prior to central banks running the global economy.

http://goldinfo.net/silver600.html

 

I'm more curious why your name is NORTH KOREA?

Also, are you a commodity trader, stock broker, or Precious Medals speculator?

Big difference with a lot of people here is that our PM collecting/trading/investing is not a "no sum" game. Commodities need not apply.

 

Perhaps you can quote an authoritative source; otherwise it's just your own "custom" definition and it really doesn't mean anything outside of your mind. There are many other definitions I have looked up just for grins and none align with your world. I can list at least 5 other definitions (all similar to the others) if it would help you. Oh and the articles on CNBC I was referring to are not just from staff writers but opinions and quotes from the market makers and investment pro's they interview on a daily basis. It's not a CNBC edict.

Actually CNBC and most other financial news I watch/read did cover the equities bubble, the housing bubble, the private debt bubble, the tech bubble and are currently covering what may wind up as a precious metals bubble, a higher education bubble, a dollar bubble and a government debt bubble. Some bull markets may look like a bubble but time will judge them as a bubble if their dramatic rise is followed by a sudden precipitous decline. By any customary definition of a bubble I think most people feel that PM's will continue their bull run for a period of time and then decline rapidly like it did in the 70's. Maybe you think PM's will just keep rising and stabilize north of $50?? That would be great.

Again this may be true according to your custom definition but not so much in more customary widely understood terms. In fact it is hard to think of a period of time where we were not in a bubble of some kind.

Bluesboy65

 

Do you mind clarifying what this means?

Would a significant increase in inflation affect the intrinsic value going forward? Would a big jump in the cost of fuel used to mine new silver from the ground increase the intrinsic value?

 

Yes...but are they using this silver for production or just sitting it on a shelf? ...that's the question you need to ask yourself.

Years ago, I was in the scouts and playing a game called "Capture the Flag". We were playing this game at night in our neighborhood. I actually snuck up and captured the oponent's flag. I was running like HELL through backyards to get to my home base...as the other team was chasing me. I was running as fast as I could...then, for some reason, I began running slower. The next thing I knew, I was on my back...knocked out!! As I was "coming to", some fat kid grabbed me and said "Caught! Caught! Caught!".

The bottom of my throught was raw...then I realized what had happended; I had run into a clothesline and it knocked my @zz OUT! It wasn't a pleasant experience...word to the wise (that's all I'm saying).

 

You, sir, are one intelligent individual...(and attractive to the ladies, no doubt! )

 

I make a clear distinction between a bull market and a bubble using the definition that was common prior to this century. Perhaps others don't. For those who believe there is a difference, they must be able to define the criteria. I've already told you what mine are, and I'm completely aware that some other "authoritative" sources don't agree. The fact that you can even find 5 current definitions of so rare an event as a bubble should tell you something. Markets wax and wane all the time without the need to call every rise a bubble and every drop a crash. Personally, I consider the present use of the term "bubble" to be a product of intellectual laziness, and it is very deceptive. As you point out, CNBC is now calling everything a bubble. But their purpose is to increase viewership and keep people entertained, frightened, and manic so they don't dare stop watching. My purpose is to understand.

If you like CNBC, watch and believe it and use their customary and widely understood newspeak use of language where there is always a bubble somewhere. Maybe the loss of meaning will matter and maybe it won't.

 

Personally, I think it's a lot of nonsense to attempt to forecast like that, but it probably does attract the ladies [and some clients with a burning need to believe someone else can do what they cannot].