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Sports, Politics, Financial Markets, Silver & More

Silver – Measurements of the Move, Outlook

Let’s look at where silver has come from in the last few years:

July 2003:  One last chance to buy at the absurdly low price of $4.50…you could buy silver at over 90% cheaper than its Jan 1980 high of $50…23 years later. Silver trading at less than 1/10th the highs!!! And it’s been nothing but consumed more & more by industry during those 23 years…amazing undervaluation…hugely mispriced asset.

March 2006: Silver finally gets thru $10…now under 80% cheaper than 1980 highs. Still remarkably cheap.

March 2008: Silver hits $21, then Bear Stearns dies, and so does silver…

Oct 2008: Silver briefly touches $9 after Lehman’s death sends markets into a tailspin…closes ’08 at $10.79.

Jan 2010: Silver has a stellar but stealthy 2009, rising 57% to close at $17.

August 2010: In the last week of the month, silver touches $19…by mid Sept it would cease to ever close below $20 again…$22 by the end of Sept, above the March ’08 highs and at levels last seen 30 years earlier.

January 2011: Silver closed 2010 on its highs at $31, made new highs the first day of trading in 2011, and then embarked upon a 3 week correction that saw it fall over 14% to $26.50. It bounced at the end of the month and never turned back…briefly pausing at the old $31 level and then bursting through.

April 2011: Silver hits $40 early in the month and races immediately to a few pennies below $41…It pauses a bit before racing to over $44 by April 19th…one very sudden 5% correction from $42 to under $40 is the biggest pause.

So now we’ve come to the present day and the only question that matters is, ‘where’s it going from here?’. Obviously from a technical point of view, it is both an incredibly strong, powerful, beautiful chart, but at the same time screaming overbought on many technical measurements. So we must look to the fundamentals to decide if it is getting overvalued up 43% already in 2011 and up over 300% since Jan 2009.

Silver demand is dominated by two large classes of money – investors and industry. All kinds of industries from the medical world, technology world, and green energy world need silver. Investors realize this and silver’s historical role as money in society, and buy it more aggressively when financial times get dicey, governments prove to be incompetent and corrupt, and fiat currencies are debased.

Estimating above ground bullion and coin stocks at 1.65 billion oz, and adding 1 year’s mine supply of 720 million oz…you can purchase all this silver at $44/oz for a mere $104b…in a world where that represents less than 1 month’s federal govt deficit, $223b in Feb ’11 alone! 

Silver is found in the ground at anywhere from 17 to 20 times more plentiful than gold, well less than the 34X multiple it currently trades at with gold at $1,500. In history it has traded between 12-16 times cheaper and was 17 times cheaper at the 1980 peak….so even though the ratio has plummetted from 80 in Dec 2008 to today’s 34, it should still probably be lower.

So in spite of the massive move that has already taken place in gold’s sexy, shiny cousin silver, there look to be many more gains ahead…couldn’t that $104b number double and still be low? Is $500b low?

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