An Incredible Rise, Followed by a Fall in Price
What always amazes is how something can rise 400% in value which is really quite astonishing, and then when it retreats a bit, the headlines are all about the percentage fall.
I suggest the reader examines the comparison of where silver is now, compared to where it was a short 2 years ago. There remains a dramatic recognition of the value of silver.
What drives the Market
One has to remember that the market is a terrible valuator of everything. The greatest attention in the market is by day traders, MBA’s, derivative specialists, and program traders. They make money on a wholly set of different principles than ‘value’.
By whichever calculator you are following, somewhere between 60% and 85% of all trades are made by the groups mentioned above, and the small percentage left is by investors who are seeking value and long term appreciation of wealth.
If you are a member of one of those groups, it is the movement of the particular thing in which you are investing that is important. The direction – up or down – is not very important. As long as there is volume and liquidity, you are happy.
The Investor’s Perspective
On the other hand, a value investor has to more concerned with whether the market is valuing something properly. The market never adjusts quickly to true value. When an idea hits all the young geniuses, everyone jumps on the bandwagon, and their attention span is equivalent to that of a gnat.
So when silver started to rise, few bothered to examine and analyze what the true value was. Instead, computer screens everywhere flashed with the ‘new’ mover, and the bandwagon started.
The game is quite simple really. Last one off is the loser. Jump on the bandwagon, Ride the wave, and try to meke sure that someone else is still buying when you sell. Therefore, the value of anything rises expodentially until fear takes over that you might be the last on the bandwagon, and then you sell for whatever you can get. The price falls accordingly.
Apply this Scenario to Silver
Silver rose too quickly, and then fell. But it didn’t fall to previous levels. It fell to levels far above previous valuations.
Silver has lots of intrinsic strength. Consider previous blogs which pointed out radically increasing demand from industrial uses, medical uses, jewelry uses, investing uses, and a decreasing ability from mining to meet demand.
Silver has moderated somewhat as the day traders and momentum followers are on to their next hot item.
Silver will again rise. Perhaps not so quickly, but every increase of $1 in the price of silver mined translates to enormously greater profits for miners.
