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.