Where all those predictors of silver price?

3 month ago the bullion section of the forum was crowded by people discussing how good/bad is investment in silver ... Well, no questions to those who said silver is good investment ... but ...
Nowadays so few threads about silver going to $20 instead of climbing to $35 ... what has happened to all those people? They are waiting for a drop to mid 20s to get back and repeat "I said you so" phrase ? Or any new explanation is being cooked?

 

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Well, I for one think that Silver is headed back to the 20's. Sure it had nice little run up, but volatility it sort of it's thing.

Everything else aside, here is a chart of Silver and the S&P for 1 year. Try not to look at the label first, and you tell me which you would rather own

http://finance.yahoo.com/q/ta?t=1y&s=^GSPC&l=on&z=l&q=l&c=Slv&ql=1

 

No need looking for any chart where real asset is shown against paper ...
after trading and investing in hi-tech companies, researching and finding the best place to store the money, after earning nice profits, etc. etc. I came to conclusion that the only things I should own are real assets not the paper that represent them.
As you understood I'm not trading on technical analysis but only on fundamental.
Chart proves nothing for me, especially in the days when digit $$$ show up on market makers' books ...

so, prove me that S&P500 companies (or let's say top 10) are having good 5 yr perspectives and then I might dig into data

 

Hrm... stretch that little chart out from 1 year to 5 years and see what happens.... S&P sitting around 0% while silver is in the 150% range.... So which exactly would you rather own again??

 

It just goes to show once again we can make statistics say pretty much whatever we want based on how we "spin" them. My vote goes to owning some of each, as I am a big fan of diversification.

 

+2 (+1 for each)

 

Stretch it out even further and the picture becomes more clear. As others have said, it is not like I am against Bullion, but just feel it should only have a small place in the portfolio. But for this post, the OP was crowing about the RECENT run up, so it was appropriate to show that even with this RECENT run up, in this particular short term, comparing apples to apples, silver did not do so well. In addition the chart also proves to be a real eye opener for Silver's volatility.

 

If I could prove it to you that the top 10 S&P companies, are going to rock the next five years, I wouldn't need to go to work any longer. There is no proof, just good guesses. PM's have had a great run and equities have not over the last 10 years. This has caused a situation, where PM,s are over valued and Equities are under valued. So I know where the majority of my greenbacks are going. See you in 5 years.

Mike

 

My recollection was that the comments were not predictions. They were observations that the price of commodities eventually revert to something close to the cost of production, and that this was in the low $20s for silver. Silver is in a bull market that will probably continue for awhile, but it may be wise to look down occasionally instead of looking up all the time and realize that the long term downside risk for silver is into the low $20s. Of course, the cost of production is likely to rise over time, but won't have the volitility of the market price. So it was more of a word to the wise instead of a price forecast.

 

My predictions of $20/Oz are based on the fact that people were extracting and selling silver for $5/Oz not too long ago. I understand that in many circumstances it was not possible to earn a profit at that price when they were just mining silver, but that's not what was happening for most mining companies. Many of them were mining and earning the majority of their profit from other metals. Since they already had the ore out of the ground, and if there was enough silver in it to make it worthwhile, they were extracting that silver to help increase their profit.

Of course the cost of oil has more than doubled since then and inflation has further eroded the dollar, but the cost of natural gas has dropped. Taking these major cost factors into consideration, I figure $20/Oz is absolutely possible. If anyone decides to chime in that it isn't, please cite other factors that are involved that would influence the cost of extraction in the long term.

But just being possible doesn't mean it will happen. There are many other factors that could affect the price of silver in the future: The economy, the strength of the dollar, demand for silver, the cost of energy, etc. I can only speculate based on what I know is true today, and based on those facts, I know that it is possible to extract silver for < $20/Oz. If it is possible, and assuming demand doesn't rise significantly from where it is today, then the "invisible hand" of economics will eventually push the price down.

Speaking of demand, that is real reason why silver is at $35/Oz today. It is not because it costs that much to extract it, but rather because people are willing to pay $35/Oz for it. If it isn't 7x as expensive to extract it now vs. when it was at $5/Oz, and if we aren't consuming significantly more silver now (and we aren't), then the price people are willing to pay is what is influencing the price. I cannot predict what other people will be willing to pay for it in the future, but I do believe supply and demand will eventually even out to a more natural level.

For me, it also boils down to desire. I want silver to drop down to $20/Oz, or even lower, because I want to buy more of it to hold for the long term. So when I say I want to see $5/Oz silver again, that isn't a prediction that we will ever see it...

 

I for one welcome the OP's challenge. Of course, it usually goes the other way much more than this direction. Considering that commodities usually track inflation roughly, so they are expected to go up every year, I would still hope the OP would be open to responding here if silver goes down in the future.

Listen, no one KNOWS what the price will do, all we can go by is history as "proof" of anything. That history generally showed commodities revert back to cost of production long term. Short term anything can happen. I have never said, nor will ever say, silver could not go to $150 tomorrow short term. To say it will go to $150 tomorrow and STAY THERE, I would not be a supporter of.

Anyone looking to an internet chat board, or even to financial professionals, to give them 100% guaranteed predictions is a sucker looking to get swindled IMHO.

Chris

 

Reverts to the cost of production? Seriously?

 

A bit oversimplified, but yes.

Not quite the absolute cost of production, but it will revert to the lowest cost of production that can keep up with demand, plus a reasonable profit for the producer. If the profit is unreasonably high for producers (as it is today), someone will come along that is willing to extract it and sell it for less.

 

Why on earth would somebody sell a commodity for less than market rate? That makes no sense what so ever. You did come to your senses by putting in a statement of supply and demand, and that is really what controls the price of just about everything.

 

Good explanation. For clarity, this can be changed by either product differentiation, (your silver is "better" than someone else's), or what would be considered illegal market manipulation in the US. Examples of this would be the Debeer's cartel, or OPEC product quotas.

However, save such illegal activities, economic theory will dictate an outcome like Blaubart describes. Any Macro 101 class will teach you this.

 

Blaubart and Chris are spot on so no need to repeat, so the question is. How do you think it works?

 

Some of you are so ridiculous sometimes it's actually scary.

Wow...just wow

 

Um, because they want to sell their goods. I'm not saying that if the market price is $35/Oz, that a new producer would be willing to sell for $20/Oz, but they might be willing to sell for $34/Oz. When they do that, the producers selling at $35/Oz would likely need to lower their price to sell their product. It's called a price war. Unfortunately for us buyers, there seems to be a buying price war going on right now.

And yes, this is how it works. No mining companies out there sell bullion to bulk purchasers for spot. They sell it for less than spot. How much less than spot depends on how much they have to sell and how badly they need to sell it.

 

Man, that is a pretty helpful post. I am sure all of the readers here are grateful for you well reasoned position.

Its fun to just make fun of others about how "stupid" they are, huh?

 

Calling us ridiculous does nothing to make your point. So far you point consists of "seriously" and " You guys are so ridiculous it is scary". Wouldn't exactly win a debate. So once again, What is your point, and how do you think it works?