Silver takes flight

Ignored and derided for more than a year, gold's speculative cousin launches higher

By Anthony Mirhaydari Aug 20, 2012 4:07PM

It's been a long time since investors have been enthusiastic about silver (and gold, for that matter). The metal has been flat lining for nearly a year and is down some 44% from the highs hit in early 2011. There are many reasons for this: A stronger dollar (euro worries), a drop in inflation expectations, a less aggressive Federal Reserve ("QE2" replaced with Operation Twist, which didn't expand the monetary base), and a preoccupation with "safe haven" assets like Treasury bonds and high-quality corporate debt.

 

That's changing now. And it's changing in a big way as silver prepares a breakout of its 17-month downtrend. Here's why.

 

 

The biggest change is that despite an ongoing decline in the headline inflation rate, market-based inflation expectations are inching higher. That's being driven by a combination better economic growth expectations (seen in the rebound in the Citigroup Economic Surprise Index) and the likelihood of central bank action in the weeks to come from the European Central Bank, the People's Bank of China, and the Federal Reserve.

 

The Europeans are worried about another flareup of their two-year-old sovereign debt crisis,  which is now beginning to affect the very heart of the Eurozone economy: German industrial activity. The Chinese are worried about a drop in export shipments ahead of a big leadership changeover. And Fed officials are concerned about a recent stalling of economic growth and bump up in the unemployment rate as the "fiscal cliff" of tax hikes and spending cuts worth nearly 5% of GDP looms in early 2013.

 

 

In the futures market, "smart money" commercial traders continue to roll into both silver and gold as retail traders pull money out of popular exchange-traded funds like the Gold Trust (GLD) and the iShares Silver (SLV).

 

Positions in the sector continue to perform well. My newsletter subscribers are already up nearly 22% in the VelocityShares 3x Silver (USLV) since it was added in late July. The position is also in my Edge Letter Sample Portfolio. Silver miner First Majestic Silver (AG) is up nearly 14% since late July.

 

Endeavour Silver (EXK) looks like the next silver issue set for big gains in the days to come as it punches out of a short-term trading range.

 

I found EXK with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Fidelity sponsors the Investor Pro section on MSN Money.)

 

Disclosure: Anthony has recommended USLV, AG, and EXK to his newsletter subscribers.

 

Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at anthony@edgeletter.c​​om and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.


 

VIDEO ON MSN MONEY

38Comments
Aug 21, 2012 7:28AM
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The bubble is in the dollar not silver.  Silver cannot be created, but can be destroyed.  It cannot be inflated or deflated, it's value is represented in dollars simply for a convenient course of measure.  As precious metals rise, the dollar is becoming worth less, or worthless depending on your point of view.  Those that understand our world situation already own silver and are saving as much as they can afford to get their hands on.  If you are only considering silver right now, it may be too late but I would get some anyway.  One thing appears certain at this juncture, the Fed will print in the near and distant future.  What other choice do they have?  Thus, silver and gold will hold their value during periods of high inflation.
Aug 21, 2012 7:41AM
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Silver would be a good investment, with the upcoming massive devaluation of the dollar. Not a matter of if, it is a matter of when. The only way the Govt. can manage it's escalating debt.

However, would appreciate a article on the Gramm Leach Bliley Act, as VL suggested. Also a article on the SEC ruling in 2004, that allowed the ten largest banks, to borrow up to forty times, there capital, which led to the housing boom, and bust, would also be appreciated.

 

Aug 20, 2012 5:51PM
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Silver is a good investment. I appreciate the news coverage.

Keep up the good work, Anthony.

Aug 22, 2012 1:09PM
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The collapse of worthless paper is coming faster and faster and is a "when", not an "if".  I have noticed that more and more thinking people are buying silver and taking physical possession.  It is usually the ones who have read a few history books and say to themselsves, "Hey, I resemble that!!!".  Please remember to buy a few wheelbarrows is the only thing I can add.

Aug 22, 2012 1:34PM
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I've been buying silver on and off for years, looks like a good time to add to the pile. Certainly better than trusting a (gasp) bank with my money. I always have it, know what it's worth, and can use it when the dollar is just toilet paper.
Aug 21, 2012 7:38AM
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You know what they say... whenever "experts" suggest you buy something, that's the best time to sell it.
Aug 21, 2012 9:58AM
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Specie and stocks will retain their value and purchasing power.  Real Estate used too, but now is too heavily taxed to shield one against inflation.  Farm land might be a option in some areas.

Stay out of dollars, Cd's, or especially bonds.  With m2 increasing at an 44% clip the last 4 years, that inflation will surface as soon as China and others start spending the dollars they have accumulated.   

This will propel Silver, Gold and Platinum higher as well as stocks.  I could see the Dow hitting 1600 in the next 2 years, but it will not be real profits, just adjustments for debasing the dollar.
Aug 22, 2012 3:15PM
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I was having an argument with someone who is something of a survivalist about why I think gold is overrated. She has a friend who is putting a very large portion of their income into gold and silver presuming a breakdown scenario.

While I recognize the intrinsic value of precious metals, the reason why I think this is a poor strategy is because their value assumes the existence of a meaningful market economy in a societal breakdown. This may very well be valid in some scenarios, but I can see how it wouldn't be in others.

But here's the situation I gave. Let's pretend I'm a farmer. If someone comes and offers me silver for a share of my crops, and assuming my crops are limited to a point where I don't have excess to trade, I have to wonder what immediate value silver would have. Trading it later might sound like a good idea, but in a breakdown, I think people will be more apt to hole up than trade, and therefore if trades happen, they'll be on an immediate barter basis, because people won't trust to trade for silver, gold or anything else because 1) most wouldn't be qualified to tell what was real anyway and 2) it lacks any immediate value.

Guns, ammunition, food stuffs, manufactured items, all these things seem inherently more valuable as something to use as opposed to just having something with which to buy this theoretical stuff.

In fairness, her argument was the economy would continue in cities, which would maybe fit better, but I know with my own planning, I put so much greater emphasis on items that allow me to be self-sufficient, not baubles worthy of trade.
Aug 20, 2012 5:16PM
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Isn't Bill Fleckenstein talking about the same thing? He wrote his last week. You keep writing BS lately. Maybe you could focus on reality like:

Closing the banks, ending the Federal Reserve System and getting rid of Wall Street. Go surfing through these comment areas... do you see happy people or a war brewing against stock jobbers number pumpers and paper pushers? Come on Tony, go visit a Mall and talk about the dust on the shelves at every big box. Stock shares keep rising but the cat's been dead since 1999. How about a great article on how the Gramm Leach Bliley Act has destroyed us? Where is your expose on BoNY Mellon being a phony felon?

Aug 22, 2012 3:08PM
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I wish Tim and his SPAM would go take a ...LEEP
Aug 22, 2012 4:28PM
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I have a theory. Bad president, buy gold and sliver. Buy all you can if Obama gets re-elected.
Aug 22, 2012 3:16PM
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My husband and I had some extra money to invest back in the 80's, He had a cousin who deals with gold & silver, so  we got involved $30,000.00 worth. (SILVER)  we paid like  $ 5.10 per oz.  I'm not sure this was the right thing to do so I was very nervous. Well with in a week silver dropped I think around $ 3.00 per.oz. I was just sick. and angry at my husband and his cousin.. Then they got the bright Idea to buy some more, so they did another    $ 10,000.00 .. So to make a long story short we still have the silver 100 oz. bars  and 2 big bags of dimes . I wanted to cash some in when it was up almost  $40.00 a oz. not to long ago. but he said hold. Well next time I'm selling some of it. I've listened to them for the last 30 years( which I'm glad I did after all )  but it's time to spend some of it. I have a grandchild now so We are going shopping !!!!!!!! ha
Aug 22, 2012 4:40PM
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Check the charts. When Obama took office gold was $600 an once and gas was $1.61. Look what happened. We must vote him out in November or gold will be $5,000 an once and gas will be $12.00 a gallon. By the way his energy secretary said we should be paying what Europe pays. What a horrible president.
Sep 10, 2012 12:55AM
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thanks for the good work,  and the eft's as well as good stock tips for silver and Gold,

 

Bill

Aug 22, 2012 4:39PM
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Oh yeah, silver is a great investment.  40 years ago when I was in college I had a summer job selling ice cream and every day the same kids would pay for the ice cream with silver coins.  I put them aside and at the end of the summer I was able to trade $50 in face value silver to this old man we played poker with for $55 and I was able to buy a new 8 track tape deck. What a deal.
Aug 22, 2012 3:55PM
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 the web site   ihavecoins dot com sells junk silver with a low premium. They sell us silver, bullion and ASE.
Aug 22, 2012 3:05PM
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Gold and Silver will remain a good investment in the very near future. I have been collecting any object made with silver(NOT silver plate) for the past 20 years, with the expectation that when the dollar no longer will be accepted in many places, I'll have the silver to purchased needed items. I do place a few silver items in a local antique-collectible store, but am experiencing some shop-lifting on the small items. So.........I'll stop putting those items on the shelves. As for Gold.............it's nice to have some in a safe deposit box, but if you aren't rich it's difficult to trade in that commodity and expect to make very much money. As for politics effecting the price of Gold and Silver, I believe it's questionable. The world doesn't always agree with the USA on everything, and there are a lot of people in India and other developing countries that play a very big part in the pricing of Gold and Silver. Windy Day
Aug 22, 2012 4:14PM
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     GOLD, AND SILVER IS A GOOD INVESTMENT ONLY.  AS FAR AS SPENDING IT, YOU CANT.  IF YOU GO TO THE STORE TO BUY A LOAF OF BREAD FOR FIVE DOLLARS AND YOU GIVE HIM WHAT?  A FIVE DOLLAR SILVER COIN, FIVE SILVER DOLLARS,   HOW DO YOU GET CHANGE?   THE SILVER IS WORTH 30 TIMES FACE VALUE. GOLD AND SILVER IS ONLY GOOD WHEN YOU TRADE IT BACK FOR PAPER MONEY.  NOW YOU'LL GET CHANGE.  SAME WITH JEWELRY.  HOW DO YOU GET CHANGE?  BUY A COKE FOR A WEDDING RING AND GET BACK A EAR RING FOR CHANGE.  IT'S ONLY A INVESTMENT.  YOU HAVE TO TRADE IT BACK.
Aug 21, 2012 12:26AM
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Creating yet another bubble, are we?
Aug 21, 2012 10:21AM
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This goes to show our economy is on the path to recovery.  Obama is doing an excellent job.  America is a safer, securer nation and Obama is repairing the problems caused by the Republicans.  We are in much better shape that all of the European nations combined.  LET THE PROSPERITY CONTINUE!

 

VOTE FOR OBAMA 2012! GOD BLESS THE IRISH!

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