Friday, April 8, 2011

Silver Price

Since 2001 the United States has made it virtually impossible for small companies to list on it's exchanges in the wake of accounting scandals that these types of firms had nothing to do with.  The net result is that most small mining companies are listed and headquartered in Canada.  Your broker has no idea what this means and might not be able to find Canada on a map.  It is not his fault, if Canada were located next to the local Country Club or perceived socially as being popular, he would definitely know were to find it.  Be prepared to continue doing the job that you are paying him to do as you research and purchase these smaller issues.  The following should help.

Last night the spot price of silver crossed a psychologically important $40/oz mark.  $50/oz seems to be the next target and honestly there is little resistance at the moment.  The timing for this is difficult as it could be one month or not til November but this next level will be achieved during 2011.

Have you had a conversation like this recently?

Sheep         "Silver can't go up forever, you know it will go down at some point."
KB Editor   "Oh yeah........what makes you say that?"
Sheep         "It has gone up too much."
KB Editor   "Interesting.........they should write about you in Market Wizards."

The following statement is one of the most helpful tools for making money in bull markets and avoiding common pitfalls that repeatedly trap average investors.  It is a profound concept that blends physics, psychology, geopolitics and economics into one simple observation. The price of silver will not stop going up until it stops going up.

Any object in motion continues in motion until another force intervenes.  In the case of silver that force can only be 2 things, willing sellers or new supply.

Sellers do not appear to be showing up in any meaningful way to take worthless cash at $40/oz silver.

Silver is a byproduct in mining operations that focus on copper, zinc or other base metals.  Roughly 680 million ounces of silver are mined annually.  Increasing that number takes time.

Finally, many readers might not understand how to invest in silver.  This is a good way to look at proper capital placement:

  • 20% PSLV Sprott Physical Silver Trust
  • 20% Physical Silver Bullion (Storage becomes an issue)
  • 30% Mid-Large Cap Silver Producers Properly Managed
  • 30% Small Junior Silver Miners (Future post will be necessary to help explain how to pick these properly as your broker will have no idea how to help you)

The physical metal gives you insurance in the case of total breakdown.  The exchange traded metal provides liquidity.  The middle market companies that are in production but not giants give you excellent leverage to a rising silver price.  Say one of these companies was mining 10 million ounces of silver last year at $17/oz and today their operating costs have gone up by 10% due to rising oil prices, but their revenue per ounce is up a staggering 135%.  What the market fails to realize is that their earnings reports this year will absolutely shock market participants as the marginal profit on each price increase in spot silver is mind boggling.  Finally, the small juniors give you potential for excellent upside because the claim they paid $10 million for and have been slaving away to develop is literally quadrupling in value.  

1 comment:

Romocop said...


Love the posts, man. Your guidance is gold.

What do you think is going to happen to the sheeple who own iSLV and GLD, so-called "paper" precious metal funds (isn't that an oxymoron), and when is it going to happen?

Is it possible for the paper funds to track the physical metal exactly? That would seem counter-intuitive.

Thanks for your service to the investing public, however deaf they may be.