The National Inflation Association believes “this is a once in a lifetime entry point for those wishing to go long silver at a bargain basement price.”
(Video follows excerpts and comments)
Here are some notable takeaways from George4Title of the NIA:
- Silver price decline is a result of massive manipulation by JP Morgan.
- Silver movements do not reflect the true supply/demand of the metal. According to George, there is no physical silver that can be purchased at these prices.
- US Mint has record sales of silver eagles; More eagles sold in one month than in the entire year of 1996.
- People aren’t willing to sell their physical silver, and there is only one way to play the silver market and that is through paper trading (i.e. stocks, ETFs)
- Gold and silver will break out from the current deflationary spiral
While we agree with the NIA that silver is an excellent long-term investment, we feel it is important to point out that just because the fundamentals suggest the price should be $30 or more for an ounce of silver doesn’t necessarily mean that it is going to happen in the near-term.
The silver market, like the stock market, is going to move up and down for a variety of reasons including precious metals market sentiment, the value of the US dollar, overall market sentiment, market momentum, technical factors and fundamentals.
If silver and gold reacted only to fundamentals, then the prices would already be at record, inflation-adjusted highs. But, we live in a world where fundamentals don’t always matter. Consider the recent ten month stock market rally. The fundamentals for the US economy are abysmal, but that did not stop us from experiencing a record rally which has led to some companies being grossly overvalued at over 50 times their earnings. Over the long run, the fundamentals for silver will win out, but there may very well be massive swings in both directions as the long-term trend plays out. Uncertainty always leads to volatility, and if there is anything that can be said about the global economy, it’s that it is at an unprecedented level of uncertainty.
It is our view that looking at the precious metals market through blinders can be very dangerous to your portfolio, especially if you are looking to make short-term profits. Without a doubt, gold and silver are currently inversely tied to the fluctuations of the US Dollar. They have not decoupled from the US dollar or broader markets, which suggests that they have not yet become the last resort safe haven for capital. Looking at the longer term trend starting from 2001, it is obvious that precious metals prices have been reacting to what can be viewed as a loss in confidence in the public sector’s (government) ability to manage our economy, however, not everyone is on board the safe haven train just yet. This is clear by recent action in silver. As markets around the globe collapsed, the dollar rose and precious metals saw a significant decline.
We are not in the business of predicting specific price entry points, but we caution readers about this being a once in a lifetime entry point for the metal. If global markets correct or collapse, then it is likely that silver and gold will drop with them.
That being said, it is important to note that we, like the NIA, believe that at some point gold and silver will decouple from the broad markets and the dollar itself. This will be similar to gold’s decoupling from broader markets in the 1930’s (charts). But this will only occur once the majority of gold buyers are buying not because of inflation fears (driven by dollar movement) but because global investors lose confidence in their governments and the economic and political stability of their respective countries.
Silver: To Buy or Not to Buy
While we cannot say for sure this is a once in a lifetime entry point, we do agree with the NIA that acquiring silver will be a worthwhile long-term investment.
No one can predict, with any certainty, what the price of silver will be a month, a year or five years from now. Global capital flows are dynamic and tend to surprise. If you are a trader who buys and sells on an hourly, weekly or monthly basis, then our advice is probably not for you. If you are an investor focused on long-term preservation of wealth, then we continue to recommend acquiring silver on a regular basis. Whether the price is $10 an ounce, $18 an ounce or $15 an ounce, if you believe silver is going to eventually reflect the fundamentals, then the best approach may be dollar-cost-averaging, with an emphasis on buying during pull-backs and corrections. Choose a regular schedule for when you are going to purchase your silver, and continue adding to your position. If you buy 10 ounces at $18 and the price collapses to $10 and you purchase another 10 ounces, you’re average price per ounce amounts to $14.
We’d suggest to our readers who are interested in owning silver that they consider a variety of investment approaches for precious metals that include holding the physical asset, as well as stocks and ETFs.
First, we’d recommend the physical metal in the form of one ounce coins (Silver Eagles, Maple Leafs), one and ten ounce bullion bars, or junk silver (Quarters, Kennedy Half Dollars).
The NIA video indicates that silver cannot be bought at the current spot price, and they are correct to an extent. In 2008, when the price of silver collapsed with the broaded indices, silver premiums went through the roof. While the spot price of the metal was $10, the premium was as high as $2.49 an ounce. Premiums have since come down, but they are still trading at a hefty $0.79 to $1.50 per ounce depending on what you are buying.
For purchases of 90% coins (junk), we recommend Ebay.com and buying from sellers with high ratings.
While it is quite difficult to buy right at the spot price (the broker has to make a commission, right?), you may still be able to acquire silver at 5% to 15% premiums, which isn’t too bad.
All of the above mentioned organizations will give you the opportunity to purchase silver at a decent price.
Once you have a physical reserve of the metal, consider precious metals stocks and ETFs like Hecla Mining, Ivanhoe, Kinross, Newmont, El Dorado Gold, GDX ETF and GDXJ ETF.
(Disclosure: Long Hecla, GDX, GDXJ)