So far I've talked about buying silver. But what about selling? When is the right time to sell? Well, frankly I have no idea on the exact timing that one should sell his/her silver. I am not a day-to-day trader who tries to time the market price movements. I am more of a long-term value investor. I believe the fundamentals of the global economic/financial systems are shaky. When mayday finally comes, the undervalued silver will have its price shot up to the moon. While I can't time the market, I can at least plan to exit at a price I am comfortable with. I think I will exit the market when silver hits USD 150-200. That's my initial plan. The plan is flexible to changes, but those changes must be based on fundamentals and not emotions (eg. greed/fear). Well, that's easier said than done.
Anyway, I have seen and heard predictions that silver prices will rise to the range of $100-1000. Being a conservative myself, I think it will rise to $150-200. Here are some reasons why:
1) I compare the gold:silver price ratios. Historically, the ratio was about 12:1 to 15:1. Right now it's about 66:1. That's a huge undervaluation of silver. At a $950 gold, silver should be more than $60. And remember that right now gold is still way undervalued. In the last gold/silver boom in 1980, the ratio was about 17:1. I have many good reasons to believe that this time round, the ratio can drop back to 12:1, or even 10:1.
2) Silver is harder to analyze than gold. Several inferences can be made of silver when we analyze gold. I made a rough calculation that gold prices will be 5-6k, by comparing the troughs and peaks of previous gold booms. In the previous 3 gold booms, gold has risen by 16-20x in terms of dollars. For the current cycle, the trough is about $300. Now the price of gold is $950, an increase of only 3x. It is still cheap at $950. For history to repeat itself yet again, gold has to hit at least $5,000 (I won't be surprised if it rises above $10k, the reasons I won't discuss here). And based on this estimated gold price, I apply my assumption of the gold:silver price ratio to get a high estimated price for silver (Do a calculation and see for yourself =D ). Another reason to think gold is undervalued is because historically, the Dow Jones Industrial Average will be fairly priced if it costs about 4 oz of gold. Now I think it's about 10 oz of gold. So we see how overvalued stocks are, and how undervalued gold is. And how even more undervalued silver is.
3) In the 1980 economic downturn, silver shot up to a record high of $50. $50 adjusted for inflation will be about $130 right now! And considering that now we have far more excess currencies and rapidly growing silver supply deficits than in 1980, oh boy I wonder how high silver can go.
4) The quantity of silver available for investment is now lesser than the quantity of gold available for investment. I can't remember the figures, but it's somewhere in my research archive. Silver is very important in the technology sector. Without silver, we won't have all these electronics that we enjoy using today. However, new silver production is way too low to meet industrial demands. Up till now, the supply deficit is being covered by governments selling their huge stockpiles of silver. I believe they also sell their stockpile for the purpose of suppressing silver prices. Now with their stockpiles dwindled, they are selling less and less. And the real supply-demand deficit is becoming more and more apparent. For the past few decades, the mining business has been unprofitable because of the artificially low prices of gold and silver. But things are about to change.
5) I believe silver prices(needless to say, gold prices too) are being manipulated. There is a really huge position on the short(sell) side, and this position is being taken up by just a few individuals. The number of shorts has drastically increased in the current financial crisis. They can only do so for so long. When the day of reckoning finally comes, due to market forces or because they're being exposed by investigators, it'll be an avalanche of losses for these individuals, and silver prices will shoot up overnight to USD 100 at least. Again, I don't have the figures at my fingertips. If you want to find out more yourself, search for Ted Butler's articles. On a sidenote, you can look at GATA, an organization which is trying to expose the gold manipulations. They have really good information.
6) Silver has always been the second money. China has started minting silver. And it has been quietly amassing huge quantities of gold too, along with Russia. When gold starts to get priced out of the middle class' reach, the horde will rush to silver, a way cheaper alternative store of wealth. This has happened throughout history. Gold always rises first, followed by silver.
There you have it. I may have more reasons but I can't think of them right now. Gotta re-study my O Levels materials because I'm giving tuition now.
Anyway, gold and silver prices will only drop IF world currency supplies drop drastically, IF the world gets rid of the currencies excesses printed for the past few decades. If this happens, real deflation will set in. And deflation is what every government dreads and will try everything at its disposal to avoid. Prices and income may drop, but the nominal amount of debt won't drop. It'll be unimaginable chaos. What the world has been doing is to print and print currencies in the past few decades to get out of recessions. To think that a country can grow itself out of the problem is wrong. I have not seen a nation or an empire succeed in this strategy. The real solution is not to print more money, but to let the recessions run its course, to correct the imbalances. Anyway, all these excess currencies will flow into gold and silver soon. Prepare yourself!
Jin
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