Saturday, May 1, 2010

Heigh-Ho, Silver? Up and Away?

If silver prices remain roughly unchanged, the 200 day moving average for silver prices will hit at least a 30 year high in about two weeks. If this happens, silver will then match gold's performance. Measured as the GLD ETF, gold's 200 day sma peaked in August 2008 at 88.30. It broke through that peak 1 year later, in August 2009 with GLD at $92.34. If one eliminates the late fall spike in GLD over $119 as an over-exuberant breakout, short-covering phenomenon, the increase in gold's price has been steady and almost inexorable.

What is interesting is that silver has been outperforming gold, reminiscent of 1978-80. A good review of that period and related periods is found at the Silver Institute's website; click HERE for link.

Currently, is featuring detailed arguments from one and two weeks ago that make the case that if one is positively inclined toward gold, one should be more so toward silver.

Excluding a few frenzied days in which the Hunt brothers pushed the silver market to a squeeze situation over 30 years ago, the trading high for that time was about $25.

If spot gold were at $1200, a common gold:silver ratio of 50:1 would give a silver target of $24/ounce.

To my knowledge, the silver ETF with the most upside is Silver Bullion Trust, run by the same folks who got the precious metals ETF concept going decades ago with the Central Fund of Canada (CEF) and who also run Gold-Trust (GTU). SBT_U (Toronto) can be purchased OTC in the U. S. as SVRZF. It trades at a slight discount to net asset value, in contrast to the implied high premium it carries in CEF. Thus there is the possibility that separate from any increase in the spot price of silver, this ETF may have a significant price rise in the order of 5-10%.

Who knows, but my sense is that silver has had enough sharp plunges the past several years, and such a prolonged bear market, that a sharp and sustained breakout to new highs above $21 (roughly its 2008 high) up to perhaps the $24-25 range would be completely surprising but quite typical of this volatile asset.

Given that silver has some superior qualities to gold as transactional hard money, the good news for silver owners is that it can be forever (tarnishing notwithstanding).

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1 comment:

  1. I need to agree with you that it is interesting to check the reviews about he 1978-80 period. Well, will take time to check the website. Also, i never had the chance to visit I hope to read about the argument because it am curious about it.