Sunday, May 29, 2011

Buying Silver for All the Right Reasons

Here is the text of an email I sent to two of my relatives a few weeks ago. I decided I should not keep this a family secret any longer.   :-)

-----Original Message-----
From: lynrobison
To: Ron, Carl
Sent: Fri, May 6, 2011 4:25 pm
Subject: I'm buying silver next week

Hi Ron and Carl,

I've attached two charts that show the price of silver since March of last year. The first chart looks like a build-up to a peak followed by a rapid fall. It looks like silver climbed to a high and now is declining to its normal lows. This is what the "silver has peaked!" crowd sees -- a chart that they assume will end up looking like Mount Fuji. These people are believers in the US dollar and Keynesian economics. They think that the economy is going to return to normal, the dollar will strengthen, and those pesky and weird precious metals will drop back down to obscurity where they belong.

The second chart is the same chart, but I added a trend line that shows silver's growth. The growth of silver's value has been steady, but you can see that the market's perception of that value has not been even or steady. In January and February, the market's perception lagged the growth of silver's value. Recently, in April and May, the market's perception exceeded silver's value as lots of speculators jumped on the silver bandwagon. 

The growth of silver's actual value is steady because the growth of the federal debt has been steady. You can see the price of gold vs the federal debt in the third attachment. The smooth white line is the federal debt and the jagged yellow line is the price of gold. 

The point is that the federal debt is steadily growing, but the market's perception of the danger it poses is not steady. The price of silver is more volatile than the price of gold, so it is at the mercy of mis-perceptions in the market. So, the silver price is often whipped to low lows and high highs. 

The price of silver is being whipped low right now, but the steady danger of the federal debt is still present and growing. As soon as the market perceives that threat again, the price of silver will be whipped up to new highs and I believe it will rebound way past $50. Several very smart analysts are predicting that the silver price will grow to be several times 50 dollars. When the silver price gets whipped above the trend line again, I plan to either exchange a portion of my silver for gold (whose price is more stable), or I will sell a portion of my silver and pay off my mortgage, or some combination of both. 

I sold about a third of my silver when it was at $48.41 per ounce. I will use part of those proceeds next week to buy more silver. 

That's my plan. I thought you guys might be interested.


FYI, I did indeed buy some more silver the week following that email. I sent that email on May 6. Since then (today is May 29), here is what the silver chart is doing.

I am not a professional investment advisor, but to me, it looks like the silver price has found a bottom for this trough, and is rebounding. Time will tell.

In any event, I have made the mental leap from measuring my wealth in dollars to measuring my wealth in ounces of precious metals. I am using the dips and peaks of the silver price to 1) gain dollars with which to pay off personal debt and 2) to accumulate more ounces of metal for a fixed number of dollars.

I suspect that the prices in the commodities complex might take a dive at some point in the future. This could happen when QE2 ends if there is no immediate announcement of QE3. Or it could happen as part of some larger collapse of the stock and bond markets (the end of QE2 and a stock/bond market collapse may or may not happen at the same time). But I would love to see such an event cause the silver price to plunge again. That would be the time to buy more silver!

1 comment:

  1. Forecast charts always helped those who have bought silver both form physical stores and websites such as the BuySilverAssets page to keep track of the value of their investment.