Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Signs That the Silver Price Has Bottomed

Commodities / Gold and Silver 2013 Jul 16, 2013 - 10:44 AM GMT

By: Jason_Hamlin

Commodities

I have not written a public article in several months. This is mainly because I have been waiting for a buying opportunity to develop in precious metals. As a fairly aggressive investor with a high risk tolerance, I took a stab when silver originally dropped to technical support around $27. I have a few small cuts from attempting to catch the proverbial falling knife, but I was quick to release and walked away relatively unscathed.


The waterfall decline from $27 to $18.50 has resulted in many silver investors throwing in the towel and exiting their positions. However, this is herd mentality and every successful investor knows it is almost always a failing strategy. With sentiment near all-time lows and blood still running in the streets, I am doing the exact opposite and wading into the waters once again.

I remain convinced that the long term prospects for precious metals are favorable and the bull market has several more years to run. At this juncture, I also believe we are witnessing an incredible short-term buying opportunity that will probably be the last of its kind. It takes a tremendous amount of courage to go against the herd, but this is where the real money is made.

When silver spiked to $15 in 2006, I was ecstatic with a near tripling in price from my original entry point. New investors looking to enter the sector would always lament that they missed the boat and wished they would have bought earlier. For them, it was too late and so they didn’t buy silver at $15.

In early 2008, silver spiked to $20 and many of the same people hesitated because they believed it was once again too late to buy. With the collapse of Lehman Brothers and ensuing financial crisis, the silver price fell to around $8 and I encouraged these same investors to buy the dip. But they were frozen with fear and kept their cash in CDs and savings accounts paying interest of around 3%.

When the price once again broke out above $20, they were kicking themselves for not buying the dip and decided they had once again missed the boat. Silver then rocketed to around $49 in roughly 18 months, generating an incredible gain of 150% in physical metals and gains of 500% or more in many of the mining stocks that we track.

We’ve all heard this sad story. It is the experience of most investors that are unable to pull the trigger when prices are low and everyone else is selling. They always wish they had bought earlier and end up chasing prices higher, buying at or near an intermediate top. This majority is a gift to the contrarian minority that is happy to relieve them of assets at deeply discounted prices.

So to the investors that have emailed me in the past wishing they had bought earlier, here is my observation of the current state of the silver market… NOW is ‘earlier.’ In 6, 12 or 18 months, I believe you will be looking back at $20 silver and wishing you would have bought earlier. When the fuse is lit under the silver price, the upward momentum can be just as powerful as it was to the downside.

I believe both the fundamentals and technicals are suggesting that silver is at or near a bottom for the current corrective wave. While the June 27 low of $18.50 is most likely the bottom, I am not so naive as to state that the price cannot move lower. Investors are an emotional bunch, easily swayed by comments from politicians and bearded men. And I fully realize that if Western governments and their banking partners masters want lower gold and silver prices, they have the paper mechanisms to do as they please in the short term. In the long term, supply/demand fundamentals always tend to re-assert themselves.

Zombie investing and short-term manipulation aside, here are six signs suggesting that silver has bottomed and is headed higher in the back half of 2013…

1) The silver price decline is indicative of capitulation selling and panic, which suggests a bottom It has been nearly as steep as the 2008 decline when the entire global financial economy was at risk of collapse. Yet, we are not in the midst of any type of a (public) financial panic. To the contrary, stocks have been climbing higher and the banking sector is reporting a surge in profits that are handily beating expectations. There really isn’t much to justify the magnitude of the decline that we have seen in silver. As investors tend to overshoot in both directions, this sell off appears to be a knee-jerk emotional reaction without much substance driving the decline.

2) Mining stocks are outperforming and tend to lead the metals After dropping much faster than silver, we are seeing signs in the past week of quality mining stocks outpacing their underlying metals. While silver is up 4.5% in the past week, many of the silver miners are up 8% or more. Of course, they tend to offer this leverage in both directions, but I like to see a quick swing back to leverage on the upside near a turnaround such as the one we have witnessed in the past week.

3) The silver price is now below the true all-in cost of production for many miners Estimates vary, but the average number is thought to be around $20 per ounce. How many items can you buy in the marketplace at or below the cost to produce it? Can you buy a gallon of gas at the production cost? Can you buy fruits and vegetables at the cost of farming the items? Can you purchase a new flat screen TV for less than it costs to manufacture? Of course not. This anomaly in the silver market can not last very long. Silver miners will be forced to shut down unprofitable mines, resulting in lower supply in the short term. They will also be forced to slash budgets for exploration and development, which has the potential to lower supply well into the future. Which leads to point #4…

2013_american_silver_eagle_obverse_1 4) The supply and demand fundamentals are increasingly bullish for silver While supply has been rising marginally, demand has been picking up significantly both from the investment and industrial sides. Investment demand in bullion is at all-time highs in 2013 and has resulted in shortages and high premiums on popular mint coins. Year to date sales for the popular silver eagle coin reached 25,043,500 as of July 1st. This amount is up by 44.0% from the mid year total for last year. More significantly, the year to date sales are up by 12.3% compared to the mid year sales total for 2011, when annual sales had achieved the current record high of 39,868,500. This should only accelerate in the coming months as bargain hunters load up on sub-$20 silver. Industrial demand also appears to be picking up after dropping last year. This is being driven by a recovering global economy and resurgence of demand from the solar industry. And unlike gold, silver gets depleted in industrial applications and ends up scattered in quantities too small to justify salvaging. So while all of the gold that has ever been mined still exists for re-sale, silver stockpiles decline each year and must be replenished with new mining.

5) The FED is not going to significantly reduce their QE program anytime soon Even the hint of slight tapering in the future crashed the markets and FED officials had to backtrack. Just when there was a building consensus that the FED would begin tapering this year, Bernanke announced that “highly accommodative monetary policy for the foreseeable future is what’s needed.” Imagine if they actually eliminated QE immediately. Ouch! A cursory examination of the FED’s key mandates also suggests that no significant tapering will occur anytime soon. Core inflation remains very low and unemployment remains high, so if anything we are likely to get more FED stimulus and not less. The FED may deliver the easing in a slightly different manner or even give it a different name, but I don’t think they can take away the punch bowl anytime soon. Rates must remain artificially low to keep the debt serviceable and keep the housing market from crashing. And we should really keep all of this tapering talk in perspective…

6) The technical chart suggests there is support around $18.50 and silver has bounced off this level in the past week I take technical analysis with a grain of salt, especially considering the degree of manipulation in this sector. However, this level around $18-$19 was strong resistance on four separate occasions from 2008 to 2010. Resistance often turns into support. The stronger the initial resistance, the stronger the future support. Furthermore, if you look at the long-term trend channel outlined in blue, you can see that silver has remained within this channel for 90% or more of this entire bull market. The only times when it made a significant move outside of the channel was during the financial crisis of 2008 and during the exponential move towards $50, which proved to be a very short-lived spike. Silver is now at levels as severely oversold as it was during the depths of the 2008 crisis, which makes little sense given the current absence of any full-blown crisis. Either the precious metals bull market is really over or silver is due for a bounce back above $30 and into the long-term trend channel charted above. You will have to make that call for yourself, but I personally assign the probability of this bull market being over somewhere between zero and pigs flying.

Conclusion

Both from a fundamental and technical perspective, silver looks to be oversold at current levels. The metal was due for a correction after the overblown move towards $50 in 2011. But just as it overshot to the upside, I believe it has now overshot to the downside. This is even more apparent with mining stocks, which are more undervalued relative to the metals than at any point during the current bull market. These companies may see more downside as Q2 earnings disappoint, but I believe much of this risk is already baked into current valuations.

I never advocate going ‘all in’ at one juncture, but I believe this is an excellent opportunity to start scaling into new positions or adding to current positions. I like to do this in tranches, buying a set amount of both physical silver and best-in-breed mining or streaming stocks every few months. This ensures that you don’t deplete all of your cash just prior to another move lower, while also allowing you to get ‘skin in the game’ at levels that appear to be near the bottom of this prolonged correction.

This is certainly not the most popular time to be buying silver coins and silver mining stocks, but I believe it will soon prove to be the most profitable time to have added exposure. If you would like to receive our monthly newsletter, the Gold Stock Bull Contrarian Report, gain instant access to the GSB portfolio and receive email alerts whenever we are buying or selling, click here to sign up now.

By Jason Hamlin

http://www.goldstockbull.com/

Jason Hamlin is the founder of Gold Stock Bull and publishes a monthly contrarian newsletter that contains in-depth research into the markets with a focus on finding undervalued gold and silver mining companies. The Premium Membership includes the newsletter, real-time access to the model portfolio and email trade alerts whenever Jason is buying or selling. You can try it for just $35/month by clicking here.

Copyright © 2013 Gold Stock Bull - All Rights Reserved

All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in