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The Current Low Prices in Silver Offer Investors a Major Buying Opportunity
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Silver prices have been on a roller-coaster since moving above $17.50/oz in March this year. Each rally has met with an equal sell-off. Each time the price of silver has moved above the $18.50/oz level, it has been capped by the bullion banks in the USA, especially J.P Morgan. They have done this repeatedly in spite of the bullish fundamental for silver. However, the supply side of silver is getting tighter and this could result in a shortage of the physical metal. Although it is almost impossible to predict a specific date when the price of silver will begin to reflect the strong fundamentals, I think it is going to happen much sooner than most would expect.
Throughout history, gold has not been the only monetary metal. Silver has always played a role alongside gold. In fact, up until the beginning of the 20th Century, more people used silver as money than they did gold. Beginning in the last quarter of the 19th century, the major economic powers of the US and Great Britain, systematically de-monetised silver. Historically, silver has been viewed as an effective hedge against a decrease in the value of the U.S. dollar and inflation. Silver, as with gold, has maintained its long-term value, as measured by purchasing power, more effectively than most currencies and fixed assets. As silver prices have generally increased during times of U.S. dollar decline and during inflationary periods, silver may provide a hedge against money creation and purchasing power erosion.
During the last parabolic phase for silver in 1979/80 silver went from a low of $5.90 on January 2nd, 1979 to trade above $50 per ounce in January, 1980 which represented an increase of more than 700% in just over one year. Such a percentage increase from the current price for silver would represent a future parabolic top price of $135. Frankly, while I don’t see prices going so high, there are many analysts who believe that the price of silver is going to trade above the $100/oz level.
Since 2003 investment demand for silver has increased steadily. The most significant demand is through silver ETFs and bullion funds. The emergence of silver ETFs and silver bullion funds has increased the ease of purchasing bullion for investors, who traditionally had to rely on purchasing coins and silver bullion directly. The view of silver as a store of value in times of uncertainty and inflation has served as a catalyst for investment demand and growth of these relatively new investment vehicles. And, now there is a new silver fund which was established June 30, 2010 under the laws of the Province of Ontario, Canada. It is the Sprott Physical Silver Trust. According to the prospectus, the Trust was created to invest and hold substantially all of its assets in physical silver bullion. The Trust intends to invest primarily in long-term holdings of unencumbered, fully allocated, physical silver bullion and will not speculate with regard to short-term changes in silver prices. The units may be bought and sold on the NYSE Arca and the TSX like any other exchange-listed securities.
The way I see it, the Sprott Silver Trust is going to take even more physical silver off the market which in turn will ultimately boost prices. No matter which way you look at silver, prices are bound to move much higher.
TECHNICAL ANALYSIS
Since April this year the price of silver has struggled to break above the $18.50/oz level. And whenever it has breached this level, it has been sold off and fallen back to around $17.50/oz. The trading range between $17.50/oz and $18.50/oz is now clearly defined. Even though there was a break to the upside in June, the prices were clearly capped and pushed downwards. The market appears to have established good support around $17.50/oz and this should be used to accumulate the metal.
David Levenstein
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David Levenstein is a leading expert on investing in precious metals, with more than 30 years experience.
For more information go to: www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.
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