Silver takes flight
Ignored and derided for more than a year, gold's speculative cousin launches higher
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.
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 email@example.com and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
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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.
Keep up the good work, Anthony.
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.
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.
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?
thanks for the good work, and the eft's as well as good stock tips for silver and Gold,
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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