I am forever being asked where silver is headed. People think because I have traded in the silver market for the last 25 years – I am supposed to have some special insight. The truth is I do not know where silver will be 6 months from now. It could be $21 or $61 – neither would surprise me. I am however, very comfortable in stating that silver will be adding zeroes to its price over the next decade. Those of you who know me personally will recall I said this 10 years ago too – when silver was under $4. I was right then, and I am right now. I defy anybody out there to show me any investment on the planet with more bullish fundamentals and less risk than silver – Right, there isn't one.
The only real insight I can give you with regard to silver is this. There is no market on the planet that moves like Silver. It is a vicious beast – a Leviathan - if you will. In the last 6 years alone it has 4 different up moves ranging from 70%-120% each. In fairness, it also has had 4 corrections ranging from 30-60% off. In typical bull market fashion, the rally's took 4-8 months each – while the corrections were all measured in weeks.
Another signature feature of bull markets is they travel light. The bull is forever trying to shake the longs out of their positions, while trapping the bears. With that in mind lets consider this recent correction in Silver in its proper context. There were many (new) people in this market getting long back in April when silver was in the forties. Those people are having their convictions tested now. While many are equating the steepness of the pullback in early May with the popping of the silver "bubble", the truth is it has been a very gentle correction in this Bull market. This correction has taken only 1/3 off the price; that is small potato's compared to the past. If this is a real correction, then silver is headed back to $21 to test last years breakout. A sojourn down there would shakeout all late arrivals as well as all but the staunchest Bulls. It is for this reason, $21 silver (coincidentally its about 60% off from the $50 peak) in 6 months will not surprise me.
On the other hand, silver is very under owned. It is also a microscopically small market – this is why the moves are so vicious. There is also about a 300 million oz per year deficit between what we produce as a planet and what we consume. While we live in a country with a propensity for papering over deficits, fact is this deficit can only be resolved with much, much higher prices. When silver does move up, it moves up BIG. If the next leg is up, then 70 % from here puts us in the mid $60s – while 120% from here lands us in the mid $80s. Both are realistic targets for a year from now.
The $64,000 question for traders is which way is the next move? While I have nothing concrete to go on, my gut tells me the next move is down. By the time its in the low $20's a few months from now the media will have the sheople convinced the bubble has popped. Those who are foolish enough to think this is 1980 all over again will be gripped by the fear of silver heading much lower than $21 – like it did in 1980 after it hit $50. They will abandon ship in droves, on cue, right at the bottom – then the bull will resume its march higher – much lighter too. I, for one, would love to get another crack at it in the low $20's. In conclusion, if you are long, stay long. Pray for a quick trip to the low $20's over the summer and load the wagon if we are lucky enough to get it. The smart ones, like me, will be scaling in deeper all the way down. : )
Thats my twocents on silver, will be on vacation for the next ten days....I promise a nice piece on the psychology of gamblers when I get back.....
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