Silver More Important than Ever

Momentarily leaving aside what we know from the work of GATA and Ted Butler – namely that both gold and silver price discovery is predominately controlled by a few dominant (bullion bank) sellers – perhaps the most volatile in the metals markets is silver.

Despite owing much of its demand to industrial uses and photographic development, is still a prime target for anti-inflation investors.  As gold treads toward new heights and pushes the 70:1 ratio with gold’s price, investors are looking to trade in their gold holdings for silver, realizing it has yet to reach its maximum price. 

Of course, this is easily reflected in daily volume and price changes, with silver rising and falling at different times and degrees than that of gold.  However, even more recently as gold as pushed upward, silver has followed, and in many times, silver has risen on days when gold has taken a sharp dip.

Embrace Volatility with Purchases

Even as silver heads to new highs, there is still no sign that investors should even contemplate an exit.  With silver at a 70:1 ratio with gold, one should expect at least a slight pullback in gold or an advance in silver prices, though gold appears to be stagnating temporarily while silver plays catch up.  The catch up advance in silver prices will take some time, and it will ultimately come in the form of ten steps up, eight back, ten steps up, eight back. 

This extreme volatility may be shunned upon by investors, most of whom are looking for a store of value, but what it actually does is allow for even more entry points as silver bottoms out on the silver to gold ratio.  Few times has silver touched the 70:1 value against gold, and every time it did, the price of silver rose significantly while gold stagnated.  If you believe history is an excellent indicator, and it should be, then there is no excuse not to be loading up on silver at today’s relatively low prices to gold.

Start Shopping at $17

Physical silver’s sister security is the exchange-traded fund SLV, which may not have all the same benefits of physical silver, but does give an accurate representation of what silver investors are doing in the other physical and futures markets.  At $17 on the exchange-traded fund, investors are buying hand over fist, whereas less than three months ago they were selling at that price.  Knowing this, we can establish that the short term floor on silver is at $17 on SLV, which works out to about $17.25 on the spot metals markets or roughly $18 in the physical markets. 

The Perfect Storm

With gold on a tear through $1250 and silver breaching the bottom of the historical silver to gold ratio, there has never been a better time to buy.   Silver’s volatility should smooth as the metal closes the gap with gold with higher prices. 

Dr. Jeffrey Lewis

www.silver-coin-investor.com
– Posted 16 June, 2010 | Share this article| Discuss This Article – Comments: 1