Wednesday, March 21, 2012

Eight Reasons to Not Fear Silver Consolidation

Worried about the COMEX spot price?

Obviously silver has taken a breather lately, hovering in the low 30s, which has been frustrating for both owners of physical silver and bullish traders alike.  Some, like Bob Chapman, GATA, and Ted Butler for example, say its due to manipulation by interested parties (US Gov't, JP Morgan, etc).  Regardless of the cause for this pullback, its beneficial to look back at the bigger picture of where we have been over the last 10 years.  10 years ago, silver was trading around $5 an ounce, less than 1/6th its current price.  Even if silver continues to consolidate and mellow out for some time, that should not dull the enthusiasm of people who know the true fundamentals that back up the silver story.  In my opinion, the strong hands in this market will be rewarded handsomely if they have the courage to stick by their core beliefs that:

1) Artificially low interest rates cannot continue forever without dire economic consequences.  This is basic Austrian School of Economics.

2) Nations cannot go $15 Trillion or more into debt without dire fiscal consequence.  This is basic Austrian School of Economics.

3) Central banks cannot continue creating exponential amounts of currency without dire monetary consequences.  Again, basic stuff.

4) Industry uses for silver are expanding rapidly, especially in tech and solar, while new mine supply is not. 

5) Silver is slowly but surely re-claiming its status as a monetary metal and the above ground stockpiles are much lower than the last time silver had a significant monetary vector. (The arrest and conviction of von NotHaus by the federal government shows how afraid some people are of this fact - and the recent display of a Silver Eagle to Bernanke by Ron Paul was truly a symbolic moment in our national history).

6) The newly wealthy and still growing Asian populations in China, India, and the Far East generally have shown a track record of buying gold and silver on the dips, acting as a strong counter-balance to the predominant view in the West that precious metals are a "risk asset". (The Asian gold exchange was stopped from getting off the ground this time, but it cannot be prevented forever.)

7) Central banks and governments have no silver left to sell into the market - this is one of their weak points in masking inflation through high bond prices.  No physical metal = No power in the long run to control price.

8) Silver is not only below its inflation adjusted high in 1980, it is well below the NOMINAL high!  People who are savers instead of traders should buy for value and fundamentals, not momentum or technical moves.  Who cares if silver takes a year or two or three to get back to $40 an ounce when the alternative is a 2% bond, 1% CD, or 0.25% savings account?

1 comment:

  1. Good points...... Keep stacking.