Monday, May 2, 2011

Silver Market Update

Most readers probably expect us to have something to say about the news of Bin Laden's alleged death.  Focus on being rigorously objective in the study of markets precludes us from political distractions.  The only thing that we wonder is after 3,000 dead on 9/11, 2,000 coalition soldiers dead in Afghanistan, 4,800 coalition soldiers dead in Iraq, 10 years of zero interest rate policy, strip searching citizens before allowing them to board commercial flights, net neutrality laws limiting freedom on the internet, requirements that precious metals purchases be fully documented due to alleged terrorist activity in the market, the severely un-patriotic patriot act, the creation of the massive department of homeland security and $1.2 trillion in military spending on the 2 ensuing conflicts, can't we at least see the body?

Physical silver markets remain unattractive.  Please remember that we advised readers to stay out of this rip tide over a week ago when the price was just shy of $50/oz.  Several emails have come in asking questions like, "What is going to happen to silver?"  Who cares?  This site is not your own personal crystal ball and we do not have a syllabus describing how the markets will move going forward.  What we do have is a strong aversion to losing capital.  When the physical market goes parabolic and the value of the stocks mining the product go down buy the latter.  Our shopping list of silver miners continues to provide plenty of excitement.

5 day chart of May '11 Silver Futures:
 Chart forSilver May 11 (SIK11.CMX)
As a reminder, we posted this in an article on how to own silver:

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)

At this time, focus your energy on the 60% of stock related holdings and don't worry about the physical silver market.  A pullback to $41/oz would be within the realm of normal behavior in this type of bull move.  As a reminder, well run silver mining stocks are trading at valuations consistent with $30/oz silver.

Take the low hanging fruit.

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