Silver Investment Loses Its Tarnish

March 3, 2008 | By | Reply More

Another good week for Precious Metals has come to a close with many a pundit, including us, expecting gold to breach the $1000 an ounce barrier very soon. There can be no argument that silver has lost its tarnish and is performing brilliantly (pun intended) along with its glitzier associates.

Silver as an investment is looking good.

We would like to see a short lived gold reversal to $920 – $950 a ounce due to profit taking so that we can continue to top up on our positions before the metal climbs past the $1000 an ounce mark as we want to back our judgment that $1500 will be targeted by the end of this year.

Can Silver Follow Suit?

PGMs (platinum group metals) continue to attain all time highs despite a comment that the automakers have ample stocks in hand for catalytic converter exhaust systems.

We can only assume that the market is still factoring in the declining situation for South African producers, still retaining their place as by far the worlds largest source of PGMs and keep in focus that barely a month goes by without a new industrial or medical application for one or other of the metals being announced.

In the meantime we are keeping a wary eye on silver.

Whilst silver investors have seen some very nice profits from the metal in recent times we keep reminding ourselves of the circumstances when the metal last topped out some twenty or more years ago.

Then the Bunkers forced the price up as they attempted to corner the market with disastrous results, both for themselves and investors who held on for too long. Despite many new applications for silver coming on line we do not believe that they are sufficient yet to fully take up the slack created by its steeply declining use in the photographic industry.

Furthermore if we look at gold at its last peak of circa $850 an ounce, again twenty plus years ago, and adjust for inflation, gold should attain a price of around $2500 an ounce to become a truly comparable high.

The earlier peak in price occurred in not dissimilar circumstances to today’s, a dollar under pressure, oil problems, war in the Middle East and galloping inflation made investors turn to gold as a safe haven store of value. The principal and most worrying difference today is that the USA has lost its pre-eminence as the worlds most dominant economy; in short it was not running an ever-increasing balance of trade deficit and owed nobody!

Silver on the other hand now has nothing but everyday supply and demand to justify its price. No Bunker Brothers playing the market, just its age old tie to the gold price when that goes up so does silver and vice versa.

The problem we see is that, unlike other precious metals, there is no significant supply problem and much of silver usage is reclaimable salvage. Although there is an increasing demand for the metal, particularly from the medical and hi-tec industries as well as for jewelry, is this sufficient to carry the price up to an inflation adjusted peak of some $40-$50 as it hangs on to the coat tails of gold?

We are betting that silver as an investment has still got legs enough to carry it to $25-$28 an ounce but, unless unforeseen dictate otherwise we will then bail out.

Silver buffs should keep a sharp eye on the charts as we think that, unlike gold and PGMs, the technical are going to give the essential clues to the metals performance for the foreseeable future.

Silver ETFs are an effective way to play this market for those of you who are tempted, otherwise for longer term investors who are considering diversifying into bullion, there is an excellent investors store on this site where any precious metal can be purchased.

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