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Is silver finally bottoming out?

Silver Coins

Over a year ago, I penned an article entitled “4 Silver Investments to Avoid.” About two weeks later, on April 26th, I wrote another article: “Should I Sell My Silver?” saying that I expected an imminent correction in the silver price, after it had gone “parabolic.”

It caused quite a stir at the time. There was no shortage of people calling me delusional for suggesting the bull market in silver was overdue for a pause. Some even labeled me a “traitor,” presumably to the “hard money” movement.

One of the silver companies I recommended to NOT buy immediately contacted me after the article was published, insisting there was nothing to worry about, and that their stock was a great investment.

For the record, since then, the price of silver is down 35.2% (based on the London PM fix). And of the four silver investments I said to avoid:

1. The iShares Silver Trust (SLV) is down 33.3%.
2. Large silver bars have obviously gone down commensurately with spot silver.
3. Shares in Silvercorp Metals (SVM) are down a WHOPPING 61.5%.
4. And shares in Coeur d’Alene (CDE) are off by 50.8%.

Not pretty.

One of the biggest headwinds for the gold and silver markets right now is the weakness in India’s economy and currency.

For a long time, India has been the world’s biggest market for physical precious metals. Though it was recently eclipsed by China as the world’s single biggest market for physical gold, India remains in the top 3 for both silver and gold.

As the Indian economy slowed rapidly over the past 12 months, the Indian Rupee swan-dived. Today it takes more than 57 rupees to buy one US dollar, up from 46 a year ago.

That makes the price of silver (and gold), which is priced in US dollars on world markets, much higher for Indian buyers.

Demand has dropped accordingly– silver bullion sales volumes in India are off between 30% and 40% versus a year ago.

Nonetheless, the weakness in India’s currency, which has also been undermined by political uncertainly, is a perfect illustration of why it pays to hold silver and gold in the first place.

Indian savers who entrusted their savings to banks and kept their money in rupees have been at the mercy of the sliding currency.

Those who bought and held precious metals, on the other hand, have seen their purchasing power hold steady, even as the rupee tanked.

While the US dollar may again be enjoying a period of relative strength, this is almost certain to prove temporary.

And just like Indian savers who kept their money in rupees, trusting your money to the government will be a losing proposition in the long term.

Holding your money in US dollars, particularly in some insolvent, illiquid bank earning one-half of one percent interest, will result in the destruction of your purchasing power.

If you agree with that thesis, the question still remains, what’s a good price to exchange your dollars for physical silver at?

To be fair, nobody can accurately divine the short-term movements in precious metals prices. But from a purely technical standpoint, silver is starting to look very interesting.

The gold/silver ratio has been clobbered over the past year in an almost uninterrupted pattern except for a brief respite in early 2012.

At the peak of the last precious metals boom, it took fewer than 20 ounces of silver to buy one ounce of gold. Over the past few years, the ratio has dipped as low as 32. But today the number has blown out 57.

If the thesis holds that we are in another precious metals boom, it certainly stands to reason that the gold/silver ratio ought to correct and become much lower once again.

More importantly, however, every single indication out there suggests that central bankers will continue doing… the only thing they know how to do: PRINT.

Despite some short-term corrections (as we saw in 2008), this is no doubt bullish for precious metals… and especially silver.

Given silver’s already steep decline from its highs last year, a price in the mid-$20s range is beginning to look very compelling.

Until tomorrow,

Tim Staermose
Chief Investment Strategist
Sovereign Man

Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

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About the author: Born to a Danish father and British mother, in Dar Es Salaam, Tanzania, Tim Staermose has led an international life since the day he was born. Growing up, he also lived in Egypt, Denmark, and Singapore, before eventually settling in Australia, where he completed his education and took out citizenship. Since then he has also lived and worked in Hong Kong, and Manila, Philippines, in the field of equity research — both for a bulge-bracket Wall Street investment bank, and for an independent investment research firm. Today, when not traveling the globe looking for investment and business opportunities for the Sovereign Man community and catching up with his diverse, multinational group of friends, he divides his time between Hong Kong, and the Philippines.

Comments on this entry are closed.

  • Chris

    Hi Tim, why did/do you advise against investing in large silver bullion bars (eg 1000oz) ?

    • Mryuri

      How are you going to establish if a 1000oz bar is 100% silver, and not filled with some other metal? Magnet test? tap it and listen for the ‘ring’? How are you going to sell only a portion of it should you need to? Who would want to risk buying a 1000oz bar off you? 

    • Staermo

       You can read all about that in the original article “4 Silver Investments to Avoid” … link at right of this page above. (Or easily found using our search feature.)

    • average joe

      Most folks don’t think big bars are the way because you “generally” can only trade them back for fiat.  Many believe the “money of Princes” will be good barter in the hard times to come.  Since it’ll pretty much impossible to barter something of that great a value- it fails the “why I buy silver” test.  If you’re cool with trading it for fiat once the price gets to a number you’re happy with, then buy it and sit tight.  Heck with the rest.

  • Paul

    Hi Tim, in the last sentence should that be a target price of mid-$30s range rather than mid $20’s?

    • Cramerus

      He is saying that a price in the mid $20’s (like it is currently @ 26.29) is worth looking at.  He’s not specifying where it will go, only that a mid $20’s price seems like a “compelling” price point.

  • Bloggit

    The simple fact is the land is common property of the human race’ So called conquerors etc are nothing more than common thieves . This includes Royalty in all its guises.Of course Capitalism can flourish above this if it respects the Common ownership of of the land and pays for its use to the people;

  • Gavin

    Is this article actually predicting anything?

  • eric taylor

    Silver Wheaton is not down as much as the miner’s stocks, I guess that says something
    for royalty interests letting the metals go un-hedged. Some may trade back to the miner’s.
    Shine on silver moon.

  • http://pulse.yahoo.com/_Q5Z627ECFCCR2YDH72DGRWB7VI chester pugh

    Read another article today that the reason gold miners are down is because the average production price is around $1200. Anybody know the production price for silver?

    • SuitBoi

      If you watch Mike Maloney whygoldsilver/wealthcycles videos on youtube, he says that most silver is produced at a loss or as an additional activity. For example; mining copper yields you plenty that isn’t copper, some of it is also silver, gold & other useful minerals.

  • BlueCollarCritic

    You don’t purcahse silver or gold so that you can turn a quick proft. You invest in them over the long haul hen you exchange your paper fiat currency for gold or silver you are moving your wealth from a state of flux controlled by central banks (not by governments) to a fixed state.

    No matter how much silver/gold has gone up or down over the last 100 years the fact is that you can still buy today the same thing you couold 1000 years ago and thats something you can’t say about any fiat currency of any nation.

    EXAMPLE: A gold coin aviable in 1912 can purchase the same suit today that it did in 1912. Some woudl say thats a terribel investment because it means the gold did not gain any value in the 100 years you had it and thats true. Whats also true is it did not loose any value where as the US Doollars that bought that same suit in 1912 are now not able tp urcahse even 1 item in the suit. Thats monetary insurance and thats why you buy gold and silver.

    All the financial wizards (including the jerks like Dave Ramsey who bad mouth anyone who prefers gold or solver) who nay-say gold and or silver now will be siinging a very different tune when the US dollar collapses.

  • Craig

     It seems like its a great time to buy gold and silver bullion! http://www.moneyteachers.org/Drockton.Bullion.html

  • erik

    Yeah, real great – silver is at $19.70 a year later, on it’s way to $7.

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