I have advised readers to watch junior silver companies. Companies that explore, or develop, or create silver resources. There have been a number of stocks that have risen quite dramatically in the last year, and a simple market scan will locate many of them.
Whether you like our picks or wish to choose others, the silver sector is where to be.
I have previously given names of a few of these companies that I like. The issue here is that the future for silver companies is quite bright. I will reproduce some quotes from others that illustrate some of the points that I raise, but they can be summarized by saying that surprisingly, investment demand for silver is not the main driver causing silver prices to rise.
Nor is the dramatic increase in demand for the metal from ETF’s and mutual funds needing silver to satisfy the demand of their investors for the metal.
Actually industrial demand is rising very fast. This driver, when added to the traditional drivers, makes silver a much more compelling investment.
The Gold-Silver Historical Ratio
Over the decades, people have always used an average standard ratio of the price of gold compared to the price of silver and have stated that one (or the other) of these metals is either underpriced or overpriced.
I have come to the conclusion that this method of valuation is no longer valid, and each metal rises or falls on its own merits.
I suggest that you not look at silver from the prospective of gold, but as an investment solely on its own merits.
The Increasing Demand for Silver
Some quotes follow. First we have some technical analysis based on the Elliot Wave Theory (the theory of which I am not a believer, as it seems to me to be one of those technical indicators that can be interpreted to mean either side of the argument)
“November 24, 2010 A Stunning Silver Forecast Comes True; What Next? David Banister, Market Trend Forecast
…………….. silver is about to stage a pretty large advance based loosely on the Elliott Wave pattern I see unfolding after a nine-odd month consolidation. (Obviously, there are also fundamental fiat currency/debt events worldwide that give it the underlying bull chart pattern). Since the average person can’t run out and buy an ounce of gold for $1,240 tomorrow, as the unfolding of the fiat crises continues to enter the public psyche, you will see a strong populace movement into buying silver, silver coins, etc. To wit, many silver stocks are moving up strongly of late, signally an imminent breakout of this precious and industrial metal…………………………..
Silver will continue to out-perform gold for the foreseeable future as well if I’m right……………………… we already had our initial corrective low, and now we will consolidate and break out.”
“November 24, 2010 : Dorothy Kosich CIBC raises metals forecasts for gold, silver and copper
CIBC says debt is driving the demand for precious metals as currencies devalue, raising precious metals price expectations.
RENO, NV – his week CIBC raised its metals forecast to $1,225, $1,600 and $1,700/oz for gold and $20, $28 and $30/oz for silver for 2010, 2011 and 2012 respectively”
There is a new report just published by GSMF Limited– A PRECIOUS METALS, BASE METALS AND STEEL RESEARCH CONSULTANCY based in London, UK.
The conclusions of GSMF are summarized as follows. If I omit anything of relevance, it is unintentional.
“Wednesday, November 17, 2010 GSMF Limited GFMS’ Interim Silver Market Review2011 is likely to see silver trade above $30/oz due to investors’ growing appetite for the metal and also a further recovery in industrial demand. Supply forecast to rise by 5% in 2010. Conditions in 2011 likely to remain conducive to high levels of investment, providing the chief support to further price gains. GFMS expect the silver price to trade over $30 in 2011. Silver’s fundamental demand (i.e. excluding investment) should continue to rise next year. “
“November 2010 Reuters – Silver was among the best performing commodities in the month of October. Silver futures for December rose…….. Naturally, this is expected to put an increased demand on silver in the coming months. It is very indicative of a growing culture within institutions to hold physical precious metals. Can you blame them? World currencies are just play money in the end. Physical commodities and precious metals are what will count.”
In a future blog, we will talk about the effect of the Fed easing by injecting another $600 billion of liquidity in the banking system. Suffice to say for now, that although there is strong historical precedent for this and the amount is not actually that significant given the enormous amount being traded daily, the perception of many is that this is a wrong move that will lead to increased fears of inflation, and increased fears of US $ devaluation.
Regardless of the merits of this reasoning, the fact that many believe this theorizing will drive precious metals higher in the short term.
All the above supports our conclusion that silver has yet to show its dramatic increase in value.
But as we have said before, it is not the price of the metal that is most important. It is the gross profit margin being made by producers and miners of the metal where the great profit lies. Buy junior companies that are in silver, but make sure that they have real merit.
