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The waterfall decline…[in silver prices] has resulted in many silver investors
throwing in the towel and exiting their positions. However, this is herd mentality and every successful investor knows it is almost always a failing strategy. With sentiment near all-time lows and blood still running in the streets, I am doing the exact opposite and wading into the waters once again. [Below are 8 reasons why I think that silver has bottomed.] Words: 1570
So writes Jason Hamlin (www.goldstockbull.com) in edited excerpts from his original article* entitled 6 Signs That the Silver Price Has Bottomed.
[The following article is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Hamlin goes on to say in further edited excerpts:
I remain convinced that the long term prospects for precious metals are favorable and the bull market has several more years to run. At this juncture, I also believe we are witnessing an incredible short-term buying opportunity that will probably be the last of its kind. It takes a tremendous amount of courage to go against the herd, but this is where the real money is made.
To the investors that have emailed me in the past wishing they had bought earlier, here is my observation of the current state of the silver market… NOW is ‘earlier.’ In 6, 12 or 18 months, I believe you will be looking back at $20 silver and wishing you would have bought earlier. When the fuse is lit under the silver price, the upward momentum can be just as powerful as it was to the downside.
I believe both the fundamentals and technicals are suggesting that silver is at or near a bottom for the current corrective wave. While the June 27 low of $18.50 is most likely the bottom, I am not so naive as to state that the price cannot move lower. Investors are an emotional bunch, easily swayed by comments from politicians and bearded men and I fully realize that if Western governments and their banking masters want lower gold and silver prices, they have the paper mechanisms to do as they please in the short term. In the long term, supply/demand fundamentals always tend to re-assert themselves.
Zombie investing and short-term manipulation aside, below are 8 signs suggesting that silver has bottomed and is headed higher in the back half of 2013:
1) The silver price decline is indicative of capitulation selling and panic, which suggests a bottom
It has been nearly as steep as the 2008 decline when the entire global financial economy was at risk of collapse yet we are not in the midst of any type of a (public) financial panic. To the contrary, stocks have been climbing higher and the banking sector is reporting a surge in profits that are handily beating expectations.
There really isn’t much to justify the magnitude of the decline that we have seen in silver. As investors tend to overshoot in both directions, this sell off appears to be a knee-jerk emotional reaction without much substance driving the decline.
2) Mining stocks are outperforming and tend to lead the metals
After dropping much faster than silver, we are seeing signs in the past week of quality mining stocks outpacing their underlying metals. While silver is up 4.5% in the past week, many of the silver miners are up 8% or more. Of course, they tend to offer this leverage in both directions, but I like to see a quick swing back to leverage on the upside near a turnaround such as the one we have witnessed in the past week.
3) The silver price is now below the true all-in cost of production for many miners
Estimates vary, but the average true all-in cost of production number is thought to be around $20 per ounce. How many items can you buy in the marketplace at or below the cost to produce it?…This anomaly in the silver market can not last very long. Silver miners…[would] be forced to shut down unprofitable mines, resulting in lower supply in the short term. They…[would] also be forced to slash budgets for exploration and development, which has the potential to lower supply well into the future. Which leads to point #4
4) The supply and demand fundamentals are increasingly bullish for silver
While supply has been rising marginally, demand has been picking up significantly both from the investment and industrial sides. Investment demand in bullion is at all-time highs in 2013 and has resulted in shortages and high premiums on popular mint coins.
Year to date sales for the popular silver eagle coin reached 25,043,500 as of July 1st. This amount is up by 44.0% from the mid year total for last year. More significantly, the year to date sales are up by 12.3% compared to the mid year sales total for 2011, when annual sales had achieved the current record high of 39,868,500. This should only accelerate in the coming months as bargain hunters load up on sub-$20 silver.
Industrial demand also appears to be picking up after dropping last year. This is being driven by a recovering global economy and resurgence of demand from the solar industry and, unlike gold, silver gets depleted in industrial applications and ends up scattered in quantities too small to justify salvaging. So while all of the gold that has ever been mined still exists for re-sale, silver stockpiles decline each year and must be replenished with new mining.
5) The FED is not going to significantly reduce their QE program anytime soon
Even the hint of slight tapering in the future crashed the markets and FED officials had to backtrack. Just when there was a building consensus that the FED would begin tapering this year, Bernanke announced that “highly accommodative monetary policy for the foreseeable future is what’s needed.” Imagine if they actually eliminated QE immediately. Ouch! A cursory examination of the FED’s key mandates also suggests that no significant tapering will occur anytime soon. Core inflation remains very low and unemployment remains high, so if anything we are likely to get more FED stimulus and not less.
The FED may deliver the easing in a slightly different manner or even give it a different name, but I don’t think they can take away the punch bowl anytime soon. Rates must remain artificially low to keep the debt serviceable and keep the housing market from crashing…
6) The technical chart suggests there is support around $18.50 and silver has bounced off this level in the past week
I take technical analysis with a grain of salt, especially considering the degree of manipulation in this sector. However, this level around $18-$19 was strong resistance on four separate occasions from 2008 to 2010. Resistance often turns into support. The stronger the initial resistance, the stronger the future support.
Furthermore, if you look at the long-term trend channel outlined in blue, you can see that silver has remained within this channel for 90% or more of this entire bull market. The only times when it made a significant move outside of the channel was during the financial crisis of 2008 and during the exponential move towards $50, which proved to be a very short-lived spike. Silver is now at levels as severely oversold as it was during the depths of the 2008 crisis, which makes little sense given the current absence of any full-blown crisis.
Either the precious metals bull market is really over or silver is due for a bounce back above $30 and into the long-term trend channel charted above. You will have to make that call for yourself, but I personally assign the probability of this bull market being over somewhere between zero and pigs flying.
* * * *
Here are two additional items that readers have suggested for inclusion after this article was published:
7) The debt ceiling clown show is scheduled for September
While it is impossible to predict how it will affect prices, any highlighting of the nation’s debt problems should be bearish for the dollar and bullish for silver. If the ratings agencies dare downgrade US debt again in the face of political posturing and inaction, this should also be very bullish for precious metals.
8) We are in the middle of the summer doldrums for precious metals
This is typically a weak period in the PM markets that is usually followed by higher prices into the fall and winter…
Conclusion
Both from a fundamental and technical perspective, silver looks to be oversold at current levels. The metal was due for a correction after the overblown move towards $50 in 2011 but, just as it overshot to the upside, I believe it has now overshot to the downside. This is even more apparent with mining stocks, which are more undervalued relative to the metals than at any point during the current bull market. These companies may see more downside as Q2 earnings disappoint, but I believe much of this risk is already baked into current valuations.
I never advocate going ‘all in’ at one juncture, but I believe this is an excellent opportunity to start scaling into new positions or adding to current positions. I like to do this in tranches, buying a set amount of both physical silver and best-in-breed mining or streaming stocks every few months. This ensures that you don’t deplete all of your cash just prior to another move lower, while also allowing you to get ‘skin in the game’ at levels that appear to be near the bottom of this prolonged correction.
This is certainly not the most popular time to be buying silver coins and silver mining stocks, but I believe it will soon prove to be the most profitable time to have added exposure.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*https://www.goldstockbull.com/articles/6-signs-the-silver-price-has-bottomed/ (Copyright © 2013 Gold Stock Bull – All Rights Reserved; Sign up for FREE email updates or click here to view the portfolio/newsletter (paid content).)
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Great article!
I think Silver will out preform Gold!
We all have seen what happened to Gold and how it has been getting manipulated (using naked shorting) by the Central Banks which are using they’re freshly printed paper money to drive Gold prices downward, which is shifting Golds ownership to the same Central banks who are now able to buy Gold at bargain prices, instead of all the small and medium investors which have been scared into selling their “worthless” holdings “ploy”.
This “trick” also serves to take peoples minds away from using Gold as a monetary standard, something that the same Central Banks do not want to do unless/until they control almost all of the Gold!
Each day allows all these Central Banks to further increase their store of Gold using just paper, something that nobody else can do; which tells me that when the US$ stops becoming the World Standard, PM (Precious Metals) prices will zoom upward!