My take on silver

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#1 Mon, Oct 28, 2013 - 8:25pm
Joined: Jun 19, 2011

My take on silver

Okay, so my thoughts on silver have fluctuated wildly but now I have to some conclusions regarding this market.

Firstly this market is full of snake oils salesman, there is no going to be no getting rich from this. Well, I will preface that by saying that if your attention is not to trade and presuming you aren't a very good trader, then there is not going to be no bags of profit from this.

However whilst I agree with a certain bearish sentiment especially in the intermediate term, the facts are there are underpinning costs to extracting silver from the ground and whether or not silver reverts back to a more industrial use, really doesn't matter. The floor underneath silver is oil and if that does not substantially drop then that base cost will continue.

In other words, yeah, I guess $15 is feasible but it can't stay there for longer than a month or 2 maybe, after that it's going to move back to somewhere around these levels. So I am going to use that as the basis for my supposition. So, what we hear about silver is that it's a store of value, a hedge against inflation. Now I believe that has been true in some time periods and not in others but let's suppose it is true.

Inflation, or real inflation is closer to 8% at the moment, but let's presume that silver is actually slightly ahead of inflation and rises at 10% plus an additional increase of $2 in the cost to extract it from the ground. If this were to come to fruition then we will not see a return to $50 until the beginning of 2019 and then, we may see a further bull run.

Now, depending upon demand for silver and how sophisticated recycling has become, this may mean a further doubling in price in the years following it or it may not go much beyond $60. This is entirely speculation by me of course but it's reasoned speculation based on what every day consumers see the real inflation rate as.

I hope I am wrong about the time line because that will be devastating in terms of opportunity costs. However something else we need to factor in is should a mass confiscation of accounts take place, then this either going to lead to a surge in price or it will push the time line which outlined even further back still. If such a threat looms and people react proactively, then it's bullish news for the price, if on the other hand people remain complacent, then the event will be extremely deflationary and will have a major effect on economic output and thus drastically impacting upon industrial demand.

One of the rebuttals of course could be to cite the national debt as the reason why in a deflationary collapse even the country will default upon it's debts but I very much doubt that those in a position of power want or will allow that to occur. I would say that if you accept this supposition for a moment then the question is how they will prevent from occurring. True, the general public is tapped out, true, true, things are worsening but the answer is, they have, or will cold bloodiedly steal the pension funds and use this as the means of continuing to service the debt. Interlocked with this is the unfunded liabilities which has been portrayed as the straw which will break the camels back, but I wouldn't be so sure.

One of the things that may do is to start demanding greater contributions into the pension funds, and if you can't do that, then you forfeit part of your pension, or, they announce that your pension entitlements will be delayed for a further 5 years, and then each time they move the goal posts further. What this will do is drastically increase the deaths in the elderly and thus massively reduce the unfunded liabilities.

There is always this assumption that government has to do x or y, but no they don't. they stopped being servants to the people a long time ago, if indeed they ever were. Obama care is a part of this programme to screw people, the hype is about how much it will cost but the truth is, it's a means to an end as people find themselves unable to afford their premiums, whilst the middle class keep getting attacked.

None of this though is bullish for silver, in fact assuming this downward spiral continues, then the enthusiasm and demand for silver may begin to fall off in the west even without a so called bail in. So if we are focusing on silver investment demand then it will be driven by the far east but for whatever reason the japanese and the chinese have not been buying huge amounts of silver and that's according to silver bulls. Whether that pedestrian appetite continues is another matter of course but we will see.

I am sure there are things which I have overlooked or underplayed in what I have presented so if anyone sees anything glaringly obvious, then please let me know. However whilst I do retain a silver position, I do intend to offload some of it again during the next convincing rally.

Overall though, as I believe our lives are going to get progressively harder each year, I would say that the reality is that most people won't give a flying crap about silver as their fundamental assets will be fresh water, food and a supply of energy.

Silver could be a good investment in the years ahead, just don't see it as anything which will make you wealthy and don't put too much capital into it in my opinion.

Edited by: daveyboy on Nov 8, 2014 - 5:08am

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