Silver Investing - Is It Too Late at $20 Per Ounce?

If you haven't been paying close attention and just heard that the price of silver bullion hit $20 an ounce last week, you might be inclined to think you missed the opportunity. The last time silver breached the $20 mark was in March of 2008, and it didn't last long. Silver investing has been difficult, and seemingly unpredictable, the last 12 months. An uptrend began in December of 2008 in both gold and silver.

The uptrend in gold prices continues, while the uptrend in silver stalled out... almost a year ago. Why has gold investing been so much easier (predictable) than silver investing the last few years? Aren't the price drivers the same for all precious metals? Wasn't the price driver/s that sparked the resumption of the gold uptrend in December 2008 the same one/s that caused silver prices to resume their climb? If so, why did silver price move into a trading range while gold price continued to rise, touching its all-time price high last week?

As to price drivers of precious metals being the same... not so much. Since all precious metals are priced in U.S. dollars, the effect of the changing value of the U.S. dollar is the same is the same on all precious metals. But this is the only consistent common price driver. How about Supply/Demand dynamics? Of course, Supply/Demand dynamics is the primary driver of price, not just for precious metals, but for all goods and services. But the Supply/Demand dynamics for gold and silver are vastly different. Stated briefly; the practical demand for silver relative to the supply of silver is much greater than that of gold.

There are three primary practical demands for gold. First, there is a small industrial demand. Second, there is a larger demand for jewelry. And third, a huge demand for what I will generalize as "investor demand." Hence, there is a very large, and growing, supply of gold. It is sitting in vaults all around the world --- tons, and tons, and tons of it. Silver, on the other hand, has a huge industrial demand. So much so that an estimated 90% of all silver ever mined has been consumed. It is gone, and gone forever. And industrial demand is rising. One example; the Chinese are going crazy with solar. Not for export, but for their own use. The solar panels they produce use silver.

Since the practical demand for silver is increasing, and the inventory is low, silver investing should be easy. Buy and hold, right? But what should have happened for us silver investors the last few years didn't happen. That is because there is a supply of silver of which the typical silver investor was not aware. It is not a supply of silver bullion, but of paper silver. And it is huge.?There have been massive short positions maintained in the silver market for about two decades. Recently, that short position has been maintained around the $20 strike price. This huge (paper) supply of silver has acted as a price ceiling.

Theodore Butler, noted silver researcher and analyst, has been beating the drum for two decades. He calls it intentional manipulation, and I am inclined to agree. Thanks to him, more and more investors are becoming aware. There a "silver lining" (pun intended) to this situation for the silver investing public. The price of silver will explode when these positions are dissolved. It might be done voluntarily, or perhaps the regulators will step in and force it, now that it is in the open.

The 1980 high for gold was $873 an ounce. Gold traded near its all-time high of over $1,260 an ounce last week. The 1980 high for silver was just short of $50 an ounce. Yet silver traded for only $20 an ounce last week. There is explosive price potential in silver.

Learn how to protect yourself against the current (and impending) economic disaster with silver investing. For more information: http://www.esilverinvesting.com.

Silver Investing - When Is It Too Late To Jump In?

In September 2010 I published an article titled "Silver Investing-Is It Too Late at $20." My conclusion was, no. A mere month later, I published another article with a similar title and the same conclusion when the price of silver closed above $24 an ounce. In late January of 2011, when the price of silver had pulled back about 11%, I wrote that this was a great buying opportunity. Other silver analysts were warning of an imminent severe pull back.

In hindsight, silver investing was smart at $20 an ounce, and at $24 an ounce, and at $27 on ounce on the pullback in late January 2011. Actually, determining when it is too late is not a matter of price. I have seen silver price predictions of between $50 and $5,000 per ounce. If one believes a particular prediction, any price significantly below the predicted price will suit your long-term silver investing strategy. But nobody knows at what price silver will top out. There are too many unknowns.

My macro-view is that the U.S. will experience a monetary crisis over the next few years. This monetary crisis of the world's reserve currency will spread around the globe. Assets will flow out of the U.S. dollar and into gold and silver, and propel both skyward. Over time, I believe that the price of silver will rise more than the price of gold by about 300% from current prices. This is the key to the question, "When is it too late to begin silver investing?"

The price of silver will outperform the price of gold because the gold to silver price ratio is out of whack due to decades of silver price manipulation. For 200 years, the ratio ranged between 15:1 and 20:1. This made good sense since geologists tell us that the earth's crust contains about 17 times more silver than gold. Since 1985 that gold to silver price ratio has been as high as 100:1. The ratio was 46:1 at the beginning of 2011. On tax day 2011, it stands at 35:1. When the price ratio returns to the 200-year norm, the price of silver will have risen twice as much, on a percentage basis, as the price of gold. But it will not stop at the 200-year norm. Things have changed.

Primarily, supply and demand have changed. Industrial demand for silver has increased exponentially the past three decades. In 2010 industrial demand consumed 51% of worldwide production. This ever-increasing industrial demand has resulted in low inventory of physical silver. Less than 10% of the silver mined still exists. On the other hand, over 90% of the gold ever mined still exists, and less than 10% of annual production is used by industrial applications.

As silver investing demand increases, and industrial demand remains flat or also increases, the gold to silver price ratio will drop well below 17:1. I think it may drop below 10:1. But being a conservative guy, I'll stop concentrating on silver when the ratio hits 12:1.

Learn how to protect yourself against the current (and impending) economic disaster with silver investing. For more information: http://www.esilverinvesting.com.

Silver Investing Formula - Monetary Inflation Times the Gold to Silver Price Ratio Cubed

Some pundits are talking deflation. And recently the Fed Chairman said inflation is not high enough. Of course, the government measures inflation by the Consumer Price Index (CPI)-excluding energy and food. What U.S. consumer does not buy food, gasoline, and some sort of energy to heat and cool their home? The price of grains was up sharply the last few weeks. And so is the price of oil. What would the CPI number be if food and energy were included? Inflation alarmists point to the sharp increase in oil and food prices and claim that inflation has already begun. However, while grain prices are up, I notice eggs are on sale all over town.

What does all this have to do with precious metals investing, and silver investing in particular? Nothing--at least not directly. First, the CPI is not a measure of inflation. It is a measure of price change of particular consumer items. Second, prices fluctuate all the time. If you read the next sentence beyond the headline that grain prices are up, you learn that production (supply) is expected to be down. The economic law of supply/demand has not ceased to work. And oil, like all commodities, is priced in U.S. dollars. Have you heard? The dollar is falling. Therefore anything priced in U.S. dollars rises.

Why would the Fed want us to think that inflation is too low? Could it be that the cure or deflation is to inflate the money supply (print dollars)? The printing of dollars causes real inflation, that is, monetary inflation. Monetary inflation makes it less expensive to repay (government) debt. When monetary inflation sets in, the price of everything goes up, and up, and up. Prices do not go up equally, because there are still supply/demand factors at work.

If we are not experiencing inflation, why has the price of precious metals continued to rise? There are two factors. One, the falling dollar, and two, a few people know that monetary inflation is on the way. The gold and silver markets are very small. When investor demand kicks in, driven by fear of inflation, precious metals will be in high demand. I believe silver investing will be more profitable that gold. And locally at least, silver investing is coming back into vogue.

Last weekend I visited a local coin shop for the first time that opened just last May. It deals only in bullion coins; no numismatic coins. The owner mentioned that since he opened last May, the gold to silver price ratio has dropped from about 68:1 to 58:1. In less than six months the ratio has moved more than it has moved in the last 10 years. And the "Small Money" locals have apparently been paying attention. The owner of the store told me the transaction he has done most since he opened is exchanging gold for silver. The local Small Money people, including ours truly, are betting the ratio will continue to move toward the 200-year norm of around 17:1.

During my first three years in college I was a math major. So I realize the silver investing formula in the title of this article is not mathematically correct. However, when monetary inflation sets in, the price of gold will skyrocket. And if, on top of that, the gold to silver price ratio moves to the historic norm, the mathematical rewards for silver investing will be equal to gold investing cubed.

Learn how to protect yourself against the current (and impending) economic disaster with silver investing. For more information: http:www.esilverinvesting.com

Silver Investing Forecast - 100-Year Storm Approaching

Many people think silver investing is pretty much like gold investing. But there are significant differences. And the drivers of the price of silver are much more complex. It doesn't seem fair, since the price of gold is over 60 times the price of silver. The relatively low price of silver has confounded analysts and cost silver investors for two decades.

I see four major elements of this perfect storm that is about to break in the realm of silver investing. First is the manipulation that has occurred in the silver market since the mid-1980's. In my last article I reported the decision of JP Morgan to close all of its proprietary commodities trading desks in early September. I am happy to report that as of September 24th, and despite prices of over $21 an ounce last week, there is no evidence of JP Morgan trying to slam the price back down--yet. Gold has not had such manipulation to muddy the waters.

A second element to the silver investing storm is industrial supply. Industrial demand for silver has grown steadily the past three decades. Silver has properties that no other metal has, making it a vital component in all types of electronic products, medical products, solar panels, and on, and on... Gold too, has industrial uses, but it is miniscule compared to the supply of gold and the uses for silver. As the rate of technological advance continues to accelerate, so does the industrial demand for silver - but not the supply.

The third element is low, inelastic supply. Analysts estimate that of all the gold known to have been mined in the last five centuries, well over 90% still exists. Gold doesn't get "used up," except for the very small quantity used in industrial applications. We see a much different scenario with silver. The same analysts estimate that of all the silver known to be mined in the last five centuries, only about 10% still exists. When silver is used in a cell phone, or to make a mirror, or photography - it's pretty much gone forever. Industrial demand for silver is greater than ever in the history of the world, and increasing. On the other hand, supply is low, and production is inelastic. By that I mean, there are only about two dozen silver mines in the world, and those mines produce only about 30% of the silver. The remaining 70% is mined as a by-product of other metals mining, the single biggest of which is copper. Silver production is virtually impossible to increase, despite growing demand. It is what it is.

The fourth element in the imminent silver investing storm is investor demand. Investor demand is the big driver of gold price, but has been an insignificant driver in the price of silver. The convergence of the three elements mentioned above, along with uncertain economic times, is going to change that. As the economic uncertainty persists, and fear of inflation and monetary malaise becomes more widespread, investor demand for gold continue to push the price up, which will put it out of reach for many new investors. Plus, the absolute dollar price will seem outrageous. Investors will turn to silver as the "poor man's gold." The manufacturing companies in many industries simply must have silver to build their products. They will pay any price, buy in advance, hoard-and drive the prices even higher.

I cannot say which of the four elements, or even if a single element, will be prevalent as the storm hits the coastline of the silver investing community. But at some point all four elements will be driving the price of silver in unison. It will be quite a storm.

Learn how to protect yourself against the current (and impending) economic disaster with silver investing. For more information: http://www.esilverinvesting.com