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Apr 3 2009 11:12AM
Why I Prefer the Silver Lining
In my recent interview on CNBC’s Squawk Box, I was asked why I preferred silver. Here’s why:
1. 1) I am bullish on gold. I can enthusiastically endorse all the bullish arguments. In fact, my investment in the Central Fund of Canada Ltd. (CEF) contains one ounce of gold for every 50 ounces of silver. I am not negative on gold; far from it. It’s a question of better or best.
2. 2) At these prices, gold is not a greatly in-demand industrial metal. It has industrial uses, but many of these uses are too expensive for gold. Gold is a monetary and jewelry metal. It also is enthroned in human consciousness as a store of value. I expect gold to continue to rise if Barack Obama continues to create so much currency.
3. 3) Silver is also a jewelry and monetary metal, but it is also a very important industrial metal. It has over 2,000 industrial uses. Back in the ‘70s when I liked silver over gold, there was ten times as much silver above ground as there was gold. Despite that, we made two to three times as much money on silver as we did on gold.
Now the ratio has changed. Industrial use has so depleted our silver inventory that government now owns none and there is six times more gold above ground than silver, which is by far the scarcer of the two metals.
So why is gold many times more expensive than silver? Because 99.9 percent of the people in the world think gold is much rarer than silver. But they are wrong – dead wrong – and sooner or later the supply/demand equation will favor silver and narrow the pricing gap between the two metals.
Most of silver is as a byproduct of mining base metals, like copper and zinc. In this economic collapse, we will mine a lot less copper and zinc, and produce a lot less silver. Silver supplies will become tighter and tighter, which means higher prices.
It is a very simple fundamental: if something is scarcer than something else, the way to place your bet is with the scarcer of the two commodities, as long as they are both in demand. They will both continue to be in demand.
But, Howard, I hear you say, if silver goes as high as you think it will and the gap is narrowed, won’t that hurt industrial usage of the metal when it becomes too expensive and people start using cheaper alternatives?
Yes! But do you hear what you’re saying? That can only happen when silver prices are a lot higher than they are now. The answer is self limiting.
Silver is by far the better bet of the two. Two or three years from now the price gap between gold and silver will be far narrower.
Today gold closed down $10.20 at $893.80 and silver closed down .16 at $12.75. For the week gold is down $29.30 and silver is down .59. The gold/silver ratio is now 70.1.
Kevin, the precious metals have a history of going down during the summer months, (June, July, August). I believe that there will be a small increase between now and June but the large rally will be in the 4th quarter that will actually start around the middle of September.
I purchased silver for about five years starting in 1990. I am in at an average of about $4.25 per ounce so I can afford to sit on it. I am not a day trader so this way I am not tied to the computer every day. I prefer long term even though there were several times when I could have gotten out with a nice profit and gotten in later at a much lower price.
So far I am holding on to my weight very well and feel quite good. I will not know about any changes until I go through a couple more chemo cycles. Then I will have another scan and find out what is happening.
Today gold closed down $23.40 at $904.00 and silver closed down .12 at $12.91. So far this week gold is down $19.10 and silver is down .43.
Today gold closed up $9.40 at $927.40 and silver closed up .06 at $13.03. So far this week gold is up $4.30 and silver is down .31.
Today gold closed up $2.20 at $918.00 and silver closed down .09 at $12.97. So far this week gold is down $5.10 and silver is down .37.
Today gold closed down $7.30 at $915.80 and silver closed down .28 at $13.06.
Today gold closed down $11.10 at $923.10 and silver closed down .18 at $13.34. For the week gold is down $19.50 and silver is down .39. The gold/silver ratio is currently at 69.2.
Today gold closed up .40 at $934.20 and silver closed up .01 at $13.52. So far this week gold is down $18.40 and silver is down .21.
Today gold closed up $7.70 at $933.80 and silver closed up .07 at $13.51. So far this week gold is down $18.80 and silver is down .22.
Today gold closed down $12.10 at $926.10 and silver closed down .22 at $13.44. So far this week gold is down $26.50 and silver is down .29.
Today gold closed down $14.40 at $938.20 and silver closed down .07 at $13.66.The gold/silver ratio is now 68.68.
Today gold closed down $6.40 at $952.60 and silver closed up .16 at $13.73. For the week gold is up $23.20 and silver is up .55.The current gold/silver ratio is 69.38.
Today gold closed up $17.50 at $959.00 and silver closed up .68 at $13.57. Som far this week gold is up $29.60 and silver is up .39.
Today gold closed up $26.60 at $941.50 and silver closed up .20 at $12.91. So far this week gold is up $12.10 and silver is down .29.
LOL! that's ok. I never pay much attention to what happens on the 1st couple of days. Past history tells me that this should be a slightly higher week. But I wouldn't take that to the bank, especially one of today's large banks. Anything can happen depending on what situation may take place.
Today gold closed down $8.20 at $914.90 and silver closed down .20 at $12.69. So far this week gold is down $14.50 and silver is down .49.
Today gold closed down $6.30 at $923.10 and silver closed down .29 at $12.89.
MBoomer, I graduated from the number one rated business school in the country but at the time that I attended it was ranked third. I was well known in the construction field and found that I could do much better there so I never really worked as an accountant but used the education as a hobby in the investment field.
The article that you posted is correct. Not writing down bad investments as they take place is a road to disaster. It inflates the balance sheet and makes the company appear to be much stronger than it really is.
My accounting training is what made it easy for me to spot the disaster that was about to take place in the banking system around the US. It was not only the sub prime loans that took the banks down but also the derivatives that numbered in the trillions that was nothing more than a gamble that went bad. If true value accounting had been applied during this time the impending disaster could have been spotted by any layman and hiding the problem would have been impossible.
The only bank that I named that did not go under or have to be taken over was J P Morgan Chase. I did say that they would last longer because of their excellent cash flow but the 1.28 trillion in derivatives added to the sub prime loans makes it a candidate for the same result as the other banks. I believe that the US economy must turn around this year or J P Morgan will be another disaster added to the list.
Today gold closed up $2.30 at $929.40 and silver closed up .23 at $13.18. For the week gold is down $9.00 and silver is down .15. That is a fairly flat week. Starting next week we should be looking at a four to six week increase in the price of precious metals.
I have received the results of the past three months concerning my pancreatic cancer. I was very close to death three months ago and did not expect to be here by the 1st of March. The pancreas is fairly small and the 5.5 cm growth was on the inside instead of connected to the outside which is very uncommon. The results of the cat scan shows that the growth has decreased to 3.3 cm which is a 40% shrinkage. It appears that the cancer in the bladder, spine and ribs has also declined. I am feeling much better and have gotten back to my regular eating habits after losing 66 pounds and have actually gained back four pounds during the past two weeks. The oncologist warned me against being over optimistic but it was a very good sign.
I want to thank you for your prayers and well wishes. You have been a great help and inspiration to me. God bless you all.
Jerry
I said that I thought that this week would be fairly flat going by past performances. A decent day tomorrow should accomplish that.
Today gold closed up $10.60 at $907.90 and silver closed up .20 at 12.77. So far this week gold is down $30.50 and silver is down .56.
Kevin, below is an article that I just came across that voices much of what I believe where gold and silver is concerned. I do not believe that the rise will continue through the summer months but will be more than made up during the last quarter of the year.
By Marc Davis Printer Friendly Version
Mar 6 2009 4:34PM
www.smallcapmedia.com
Silver prices are poised to outperform gold while moving dramatically higher later this year due to increasing investment demand, attendees of the world’s largest mining conference in Toronto were told earlier this week.
Speaking at the Prospectors and Developers of Canada Association (PDAC) annual convention, German investment fund manager Oliver Frank told a packed room at the “Accessing European Capital” forum that silver will likely end the year in the $25 range. This bold projection is almost double current silver prices.
A late 2009 surge in pent-up buying demand, particularly among Europeans, will prove to be the catalyst to silver reaching historic new highs, added the CEO of the Butzbach-based investment fund, Silver Capital AG.
He also believes that heightened global investment demand will also help gold to breach the hallowed $1,500 mark by year’s end – an appreciation of about 60% over its March ‘05 spot price close.
Both scenarios should stem from investors continuing to flock to gold and silver as “safe haven investments” in response to the onset of a hyper-inflation in the U.S. economy, Frank added.
Yet, he believes silver should enjoy a bigger percentage boost in value because physical demand has been consistently outstripping supply in recent years.
“In Europe -- Germany in particular -- everyone is trying to buy silver bars and coins, rather than gold, but there just isn’t the physical supply available. Global above-ground inventories are severely depleted. So, people these days just can’t get their hands on enough silver,” Frank said.
Hence, it is becoming increasingly popular for investors to gain access to the silver market by way of a proxy. This involves buying into a silver-denominated exchange traded fund (ETF) – an index fund that tracks silver’s performance. No less than 200 million ounces of silver have changed hands in this manner over the past 12 months, which is an unprecedented figure, Frank pointed out.
However, his countrymen have a sentimental attachment to buying physical silver, particularly in the form of coins, as this proved to be a crucial investment lifeline for many of them during the 1930s, Frank says. This was an era in which hyper-inflation ravaged the German economy. In fact, Germans have traditionally valued silver coins as a hedge against political or economic crises dating as far back as the 15th century.
Frank also forecasted that industrial demand for silver will remain robust during the balance of the year, especially since it has a growing reputation for being an “enviro-metal.” This is due to its anti-bacterial qualities and its uses in a growing diversity of high tech energy-saving applications.
He added that all of these developments will prove to be a boon to ‘emerging primary silver producers’ (ones that don’t extract silver merely as a by-product of gold or base metals mining). This is especially the case now that silver is about to establish a sustained trend reversal, he predicted. It will lead to silver revisiting the $15 level over the next three months, before re-establishing its $20-$21 highs of 2008 by late summer.
The metals are only doing what they have done in the past, taking a breather after a four to six week run-up. So far we have only had one bad week. Here are the closing prices for the past eight weeks weeks.
1-16-09---Gold $842.40---silver $11.22
1-23-09---Gold $898.30---silver $11.93
1-30-09---Gold $927.10---silver $12.67
2-6-09----Gold $911.40---silver $13.13
2-13-09---Gold $941.60---silver $13.67
2-20-09---Gold $993.20---silver $14.41
2-27-09---Gold $939.60---silver $13.11
3-6-09----Gold $938.40---silver $13.33
You will notice that during this time gold has gone down three times while silver has gone down only once. I have been an advocate of silver because it has always gone up faster in a bull market than gold on a percentage basis. During this time period the gold/silver ratio has gone from 75.08 to 70.40.
I believe that we will see a fairly flat price action this week and then a slow increase in prices for the next four to six weeks.
Today gold closed down $24.20 at $897.30 and silver closed down .37 at $12.57. So far this week gold is down $41.10 and silver is down .76. The gold/silver ratio is 71.38.
Tsafi, congratulations on your marriage. You were in the middle of a mess in Gaza and we were a little concerned for your safety. Sounds like you have made some great moves since the last time that we heard from you.
Today gold closed down $16.90 at $921.50 and silver closed down .39 at $12.94.
I agree Boomer. I am a little concerned about his safety. I believe that he was in the Gaza area when the excelled fighting broke out about a month ago.
Today gold closed up $6.00 at $938.40 and silver closed up .09 at $13.33. For the week gold is down $1.20 and silver is up .22. The current gold/silver ratio is 70.4.
Today gold closed up $26.50 at $932.40 and silver closed up .33 at $13.24. So far this week gold is up $7.20 and silver is up .13. The current gold/silver ratio is 70.42.
MBoomer, I can't find the post but it may have been put on another web site. When the Dow hit 9000 they celebrated and had a party at the closing after ringing the bell. The Dow hit a little over 14000 and then headed down. I remember when it hit 9000 on the way down and I posted that it looked to me like the bottom would not be realized until the Dow hit 5985. I'm not sure how I came up with that figure but when I recognized that the major banks were going to fail it had a lot to do with it.
Today gold closed down $9.90 at $905.90 and silver closed up .08 at $12.91. So far this week gold is down $33.70 and silver is down .20.
Today gold close down $9.60 at $915.80 and silver closed sown .12 at $12.83. So far this week gold is down $20.80 and silver is down .28
Today gold closed down $14.20 at $925.40 and silver close down .16 at $2.95.
Today gold closed down $5.90 at $939.60 and silver closed down .01 at $13.11. For the week gold is down $53.60 and silver is down $1.30. The gold/silver ratio is now 71.67.
After six weeks of gains in a row silver lost the past three weeks gains in one week. On 2-6-09 silver closed at $14.13. Silver is still up by about $2.00 since the 1st of the year or about 18%.
Today gold closed down $8.60 at $945.30 and silver closed down .61 at $13.12. So far this week gold is down $47.90 and silver is down $1.29.
When the bull market was just starting to get into full force this happened all the time. After six straight weeks of gains there would be a rather large one or two week drop. Then the upward trend would continue.