Is Now The Time To Invest In Silver?

August 27, 2009 | By | 1 Reply More

Since the beginning of August spot gold has stayed within a $36 range, less than a 4 % movement between peak and trough. That this has been due to factors such as Indian jewelry demand falling while China has increased its buying, a more or less range bound dollar and oil also staying more or less around the $70 a barrel mark is undeniable.

Add in the debate about deflation versus inflation and lower market activity as traders put their feet up in the sun, it should come as no surprise that gold has been a little slow in keeping up its bullish trend momentum.

In the same period spot silver has stayed obdurately between $14 and $14.60 an ounce apart from one momentary swoon to $13.50 and a brief jump to just over $15.00, about a 5% swing disregarding the two moves outside the range.

The difference rates of movement between the two does not, on the surface seem much, but it does highlight the greater volatility of silver and that gives short term technical traders more profit potential. When active trading returns to the markets after Labor Day in the US, Monday week, gold and silver will break out of their August range.

Is that the time to trade silver or is now the time to invest in silver?

Why not gold, you may ask?

Simply that the percentage profit potential in silver is a better bet, even when the metals are range bound. If you are on the side of those that believe that inflation will take off sooner rather than later, then you must be a buyer of gold or silver, both secure stores of value in such times.

Be very aware of the gold /silver ratio, currently hovering around 65-67, compared to the historic average of 50-55. This means that if gold maintains an upward momentum, silver which 99.9% of the time hangs on to gold ´s coat tails will outperform the yellow metal as the ratio returns to its norm.

The opposite is true, if you are in the deflationary camp and believe gold is due for a correction. It is better to short silver than gold to make your buck go further. Our favoured play in such a scenario (which, by the way we do not think is likely) is to sell short term covered calls in iShares Silver Trust so that we would have some insurance if we continue hold the stock, combined with buying puts to take advantage of the anticipated fall.

Either way, we should know the likely trend by the end of September and we would be very surprised if silver is not looking at $18 plus an ounce by the years end.

Right now it seems like a window of opportunity is open to invest in silver for the longer haul.

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Category: Silver Investment

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  1. Alan Harris says:

    Silver is actually (presently)more valuable than gold because it’s essential to the electronics industry as a necessary input for production of products,to incl.circuitry and other functions.Gold essentially is used for jewelry and as a storehouse of value, backing currencies.Although future invention and other developments could [and probably eventually will] arise to interdict silver’s potential value,it’s not on the current investment horizon! Further respecting gold, how valid are current storehouses of supposed gold backing currencies or government storehouses?! Would one “bet the ranch” that significant or otherwise gold reserves actually exist at Ft. Knox!? [Cf.movie “Goldfinger!”] Or, for that matter,private investment firms or banks or other depositories alleging significant storehousing or access to such metals?

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