The Price of Silver and its Historical Context
Ok, so lets put the price of silver into some context…….
According to various sources (charts courtesy of Casey Research), silver reached $111.75 at its 1980 peak, adjusted for inflation (assumption made that government measure of inflation accepted – we can leave that discussion for another day).
Right now, we’re nowhere near that level, despite relatively recent run-up in price and subsequent corrections. Factor in the currency issues of today (DEBASEMENT, DEBASEMENT, DEBASEMENT) and there’s sound argument for suggestion that silver could reach even loftier heights – and remember we’re talking about price here SOLELY, not the fundamentals of supply and demand.
It’s pretty well documented that there’s been a surge in investment demand for silver. The Mints globally are under huge pressure and keep running out of stock…demand is sky high. Try getting hold of Maple Leafs and Eagles. If you have experience in purchasing these, notice the difference in availability and time to take delivery….it’s increasing right?
That’s because they’re harder to come by.
So the chart shows, simply, the net buying and net selling of investors. Whilst demonstrating buying has jumped in recent years (and even more so in 2011), consider the difference between now and the 1980 high; it’s still 36% below that level.
The data includes ETF products (SLV and the like) – and bare in mind since then the population globally has increased 57% (plus technological advances, developments increased number of uses – you see where I’m going here?!).
The fact is silver is nowhere near its inflation adjusted high. That, coupled with investment demand (as above) strong – it is far below its prior peak – suggests that in terms of silver’s price potential, there is still a long way up to go!
It had a big sell-off in April/May 2011, and today as I type it has tested the 35.00 USD/OZ level. If you don’t know whether the price will continue to test round number levels, become range-bound or soar, then the best play for you is to purchase in tranches. What I mean by that is that it is the best strategy of keeping you in the market because you buy when prices get lower, then build your position using the volatility to your advantage. This is known as dollar cost averaging; you are taking advantage of the volatility buying at different prices, knowing that the price will eventually increase in price. When it does, you will have accumulated enough to make it worth your while!
Practical example: buy some now, some next month and then the month after – and just keep it going! You will have accumulated a decent enough position size to benefit when the bull market kicks in!!
So this is a bit of background based on the price action of silver and not just recent.
Next up, the technical analysis of the silver market (don’t worry, it won’t be too technical).
Oh – and the conclusion for this article should be: BUY SILVER!!