About a month ago I posted a response in another venue to an analysis of the silver market. The analysis was solely technical; that is, charts. My brief response was that any pullback would be shallow and short-lived. I have been surprised, and was forced to reconsider my view on silver investing.
I was surprised by the depth of the pullback, which was about 13%--so far. The January 28th price recovery of just over a dollar per ounce due to the protests in Egypt does not necessarily mean the end of the pullback. In my last post on Ezine Articles I wrote that I could not think of a black swan event that would be bad for silver investing. While Egyptians or others who live in that part of the world might not have been surprised by the rioting in Egypt, I certainly didn't see it coming. And I couldn't have accurately predicted the dollar increase in the price of silver. My view on silver is a long term view.
I expected any price pullback in silver to be limited to a maximum of about 8%. I expected the increased investor demand to stabilize price as investors rushed in to buy more at lower prices, which I did. While a 13% pullback wouldn't be considered a major pullback by most, and while 3-4 weeks is not a long term correction, the silver chart does look ugly.
While I believe charting can tell you when to buy and when to sell, and rely heavily on charts in my equity investing, in my silver investing I believe the fundamentals will overpower any and all charts. Precious metal and stock market analysts in the United States credit the price pullback in gold and silver to strength in the stock markets. They believe investors moved money from precious metals into the stock markets for better yields. The conspiracy theorists in the silver investing community claim the price of gold and silver are being manipulated.
I believe that if there is manipulation in the silver markets, it is short term manipulation designed to allow the banks that have massive short positions to cover their short positions at less of a loss. As to money moving from silver to the U.S. stock markets; silver is not a U.S. controlled commodity. On the other hand, there is so little physical silver in above ground, it would only take a tiny percentage of the money tied up in the U.S. markets to cause a short term price fluctuation.
Those with a long-term view of silver investing will take this opportunity to acquire physical silver. January was a record sales month for a California gold and silver dealer. Revenue from silver sales far exceeded that of gold sales. I am not suggesting that the volume of physical silver sales at a large leader will affect the world silver price. However, the cumulative buying activity during this price pullback will decrease the future supply of silver. And silver, unlike gold, has tremendous industrial application. A decrease in supply due to increased investor demand will drive price up, albeit irregularly. Industrial users must buy silver or go out of business. Since silver is a relatively small percentage of total cost in most industrial applications, they will pay any price, and at some point either hedge or hoard.
If enough of us in the silver investing community view price pullbacks as buying opportunities--and act--it will hasten the time when the shortage of physical silver, or the fear of the physical shortage of silver, will drive price through the roof.
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