Use access key #2 to skip to page content.

XMFSinchiruna (27.47)

Two Silver Scenarios

Recs

55

May 16, 2011 – Comments (30) | RELATED TICKERS: SIL , CEF , GPL

A friend of mine just sent me a link to this interview with Ross Clark, an investment advisor with CIBC Wood Gundy in Vancouver.

While the hosting website strikes me as cheesy for its stock-pumping ads, the content from the guest was nonetheless interesting. The link is here if you're inclined to listen to the full 23 minutes:

http://talkdigitalnetwork.com/2011/05/silver-consistent-history/

In short, he outlines two likely scenarios for the silver price based upon technical analysis of both present dynamics and past corrective phases. One scenario would see silver holding its present low of around $33 for this correction through early June, which in his opinion would set up an accelerated run to prices in the $70s likely by the end of the year. In a second scenario where we break lower to $23-$27 before finding a bottom, which by his estimation would more closely resemble past corrective moves, the move to take out $50 would then take a good bit longer (i.e. probably not this year). I bring this up not because I am convinced of one scenario or the other, but because I believe it wise to consider both as residing within the realm of possibility. To adapt to both possibilities, I am both a buyer here and also a holder of cash in reserve (though admittedly my reserves are growing slimmer than I would prefer).

Since Trader Dan sounded some bearish tones in his latest discussions, referring in particular to a key break of support in the continuous commodity index, I thought it particularly timely to remind Fools that although I believe silver purchases in this range represent strong opportunities for profit, there are no guarantees that the initial reaction low will hold as a low for the correction. Indeed, historical patterns suggest otherwise. As always, however, there are limits to the predictability of technical analysis, since enormously complex events transpiring throughout the global economy are capable of driving massive upside moves in precious metals at any given second. That is why my core positions remain untouched throughout the long-term secular move ... and why my attempts to time the market in broad strokes are practiced with only a minute portion of my overall pm exposure.

Also, keep in mind Jim Rogers' words of wisdom regarding parabolic moves, and how he welcomed this correction because otherwise he would have been "forced" to sell. The first scenario above might be interpreted as a continuation of the too far, too fast movement, whereby a scenario involving a deeper and somewhat more prolonged correction might ultimately prove the more beneficial outcome for long-term precious metal investors. 

30 Comments – Post Your Own

#1) On May 16, 2011 at 10:11 AM, XMFSinchiruna (27.47) wrote:

Great news for Quadra FNX:

http://www.mineweb.co.za/mineweb/view/mineweb/en/page36?oid=127104&sn=Detail&pid=102055

Report this comment
#2) On May 16, 2011 at 10:13 AM, XMFSinchiruna (27.47) wrote:

“Jim Sinclair said the other day, “The drop at this time will in retrospect be seen as the foundation for gold trading not at $1,650, but rather at $5,000 an ounce.” –Wealth Daily

Report this comment
#3) On May 16, 2011 at 10:16 AM, XMFSinchiruna (27.47) wrote:

Brigus Gold's annual report came in the mail recently, and I found the letter to shareholders an enormously encouraging read.

Report this comment
#4) On May 16, 2011 at 10:41 AM, MoneyWorksforMe (< 20) wrote:

Just an interesting factoid I learned of today:

In French, Spanish and Hebrew languages, the word for "money" also means "silver." 

Report this comment
#5) On May 16, 2011 at 10:45 AM, Gonzhouse (75.72) wrote:

As usual, great stuff. And I agree with the 2 scenario premise. Deciding which scenario is a tough call. A Long Term secular bull market is driven by sustainable change in underlying Demand vs Supply: in the case of silver, it's increased demand (particularly emerging markets), falling supply, flight from fiat currency, and uncontrolled growth in money supply. We definitely have that here. A Bubble is an unsustainable change in underlying Demand vs Supply: in the case of silver, a lot of hot money and speculators pile in and they were shaken out by the ratcheting up of COMEX margin requirements.

My view is that silver's bull market will have periodic bubbles on the way to $75, the current one you have been warning about for some time. A number of TMF writers "Silver Will Fall by 66%", for example, are mis-interpreting the inevitable bubble pop for a return to the conditions that existed before the Long Term secular bull market started. They are right about the Bubble but wrong about the long term.

Getting back to Which Scenario - well, beats me. A short-term event will likely decide and they are just about impossible to predict. I play for the long term and my short term trading is very limited. If the price does drop to $25, expect a lot of "I told you so" but the bottom line is the impact on Long Term is negligible.

Long (term) SLW & GPL

Report this comment
#6) On May 16, 2011 at 10:56 AM, 100ozRound (29.39) wrote:

MoneyWorksforMe

Argentina is named after silver (argentum)

Report this comment
#7) On May 16, 2011 at 11:13 AM, MoneyWorksforMe (< 20) wrote:

 100ozRound

Yes, latin; and hence the reason we see Ag on the periodic table. In latin, argentum means "silver" and "money" as well...

Report this comment
#8) On May 16, 2011 at 11:23 AM, reinman60 (< 20) wrote:

Two very reasonable scenarios.

Zero Hedge links this Reuters article which I find very interesting.  While silver had gotten ahead of itself on a price basis, the author of this article lays much of the blame on algoritmic trading strategies, and likens the the sharp sell off in the commodity complex to a slow motion flash crash. 

I think to a large extent he is right, and that this is a non economic , market event driven by trading stategies, much as were last May's flash crash and the 1987 stock market crash when "portfolio insurance" was the flavor du jour.

The markets recovered fairly quickly from both of these events, and to the extent that the sell off in silver was caused by similar factors, this would argue for a somewhat more rapid recovery than might otherwise be anticipated

Time will tell, of course, and its dangerous to make predictions about such volatile markets, but this article raises some very good points, and is certainly food for thought.

Whatever your take on this, I think one thing is indisputable: the only reasonable strategy is to have a well though out long term fundamental view and to position yourself accordingly.

 

http://blogs.reuters.com/eric-burroughs/2011/05/15/warning-signs-on-market-liquidity-risks/

Report this comment
#9) On May 16, 2011 at 3:22 PM, jesusfreakinco (28.92) wrote:

Chris,

And another caution... I'll say it... don't trade on margin :-)

Report this comment
#10) On May 16, 2011 at 5:30 PM, monksnake (38.84) wrote:

The Great Panther looks like a hissing buy right now. 

If I'm not mistaken GPL traded right at $2.62 when it first hit the AMEX, silver was approx $25 at that time.  I had to pick some more up today.  Long term this will pan out well. (Rather had gotten in at sub $1.00 level though) 

Report this comment
#11) On May 17, 2011 at 7:30 AM, skypilot2005 (< 20) wrote:

“May 16, 2011 at 10:16 AM, TMFSinchiruna (98.77) wrote:

Brigus Gold's annual report came in the mail recently, and I found the letter to shareholders an enormously encouraging read.”

 This company was #3 on Sinchi’s “The top 10 gold and silver stocks for 2011”

12/22/10 piece.

Here’s some links for those of you who didn’t pull the trigger, then:

 

http://www.brigusgold.com/

 

http://www.brigusgold.com/pdf/2011-04-15%20Letter%20to%20Shareholders%20final.pdf

 

Page 1:

Black Fox projected  annual production of 104,000 ounces at a cost less than $550.

Page: 2 They expect to be profitable this year.  Current reserves of approximately two million onces.

Have option to buy a % of stream back from Standstorm for $36.5 million.

They are now hedge free.

Repaid the entire Black Fox Project $70 million Facility.

 

Related:

http://finance.yahoo.com/news/Sprott-Loves-Silver-But-indie-2810516445.html?x=0&.v=1

 

“A look at Sprott Asset Management's top-15 U.S.-listed equity holdings from the end of Q1 shows that the bullion-backed Sprott Physical Gold Trust ETV (NYSE: PHYS - News), which debuted in early 2010, remained the firm's largest position. Sprott also introduced a similar, silver-backed entity in late 2010, the Sprott Physical Silver Trust (NYSE: PSLV - News). Elsewhere, Sprott was putting capital to work, with a new stake in gold miner Extorre Gold Mines (AMEX: XG - News) and increased stakes in Yamana Gold (NYSE: AUY - News), Brigus Gold (AMEX: BRD - News), Eldorado Gold (NYSE: EGO - News), and Sprott Resource Lending (AMEX: SILU - News), a Sprott-controlled firm that provides funding for commodities companies”

I found some change under one of the floor mats while cleaning out my vehicle on 10/28/10 and picked up a few shares.  I will be pulling the trigger again, soon.

 

Sky Pilot

Aspiring weblink assistant to Sinch.

Report this comment
#12) On May 17, 2011 at 7:39 AM, XMFSinchiruna (27.47) wrote:

Thanks skypilot. You are without a doubt the best weblink assistant I've ever had.  :P 

Report this comment
#13) On May 17, 2011 at 6:21 PM, walt373 (99.81) wrote:

Interesting how both scenarios result in silver going up a lot eventually. In your opinion, what could cause the scenario for silver to have already topped and head lower for the indefinite future? What is the probability of this happening, if you had to guess?

Report this comment
#14) On May 18, 2011 at 8:40 AM, XMFSinchiruna (27.47) wrote:

walt373

0.00000001

Report this comment
#15) On May 18, 2011 at 10:30 AM, walt373 (99.81) wrote:

Is there a level where you feel PMs would be overvalued? For example, if gold and silver were 10x their current price today, would you still be a buyer? What about 1,000,000x? Do you believe the USD will go to 0? If you do, then I can understand recommending PMs at any price. Otherwise, there would be a price that is too high, right? How would you go about estimating a range for this price?

Report this comment
#16) On May 18, 2011 at 11:08 AM, XMFSinchiruna (27.47) wrote:

walt373

If gold were 10X its current price, then chances are the economic landscape would be looking 10X worse than the horrific outlook we presently face. If the future continued to portend additional worsening of that picture, I might be a buyer then as well, but like any outlook it is conditional upon the underlying fundamentals behind a given outlook.

I am a buyer anywhere beneath $2,000 gold and $100 silver, and anything after that will depend upon my assessment of the macroeconomic and fiscal landscape at the time in question.

Your question seemed to focus more on whether silver had topped, and on that point I can unequivocally express my emphatic opinion that it has not ... not by a long shot.

Report this comment
#17) On May 18, 2011 at 5:02 PM, walt373 (99.81) wrote:

Silver topping in the short term was just an example, like PMs being 10x their current prices. I just wanted to get an idea of your thought processes. My opinion is that, there are almost no sure things in any arena, including financial markets. So for any investment, I believe it makes sense to pay attention to risk, including the risk that you are wrong, either due to faulty analysis, incomplete data, or an improbable event changing the picture in a case where you'd otherwise be right. I wanted to hear you, a knowledgable PM bull give a balanced analysis of the downside. Or if you believe there is literally zero risk in the long term, to say so. Since you believe there is a 0.00000001 chance, can you explain what needs to happen for that to occur?

Also, my question about PMs being 10x or 1,000,000x their current price was based on the assumption of all else being equal. Imagine there was a parallel universe where everything was the same except for the price of gold and silver. Would it even be feasible if gold was 10x its current price given the current economic conditions? I would think the PM bulls would say yes, since this would happen if the majority of people adopted their opinons and became just as bullish (and in their view, correct). What price would it take for you to stop being bullish?

Report this comment
#18) On May 18, 2011 at 5:11 PM, walt373 (99.81) wrote:

For example, do you believe there is a 99.999999% (1 - 0.00000001) chance that the USD will see Zimbabwe-style hyperinflation? If so, is this your base case or your best-case scenario? In this case, any price quoted in USD is basically meaningless and PMs should have prices of infinity, right now.

Report this comment
#19) On May 19, 2011 at 7:48 AM, silverminer (30.62) wrote:

walt373

faulty analysis ... pshaw... bite your tongue. :)

Unforeseen events are the only true risk to the outlook, and they include highly improbable events like a convincing crest in U.S. debt, double-digit interest rates, a sudden but orderly deleveraging of the global derivatives market, the discovery of a second moon orbiting Earth that's made of silver and gold, etc. 

I can live with those risks. Every investment has risks, and speculating that gold and silver will go higher is no different. I personally am completely confident in my long-term outlook, but each Fool is advised to limit their exposure in accordance with their own comfort level, their own allocation strategy, and their own confidence in the long-term outlook. For short-term-minded investors, the risks can be quite great, as near-term swings can right quite a distance from the trend in both directions.

As for your paragraph 2 above, if we were trading above $2,000 for gold and $100 for silver right now, I would be seeking to raise a large cash hoard to reclaim my initial investment in the sector. Beyond that it is hard to say what I would do or who my attitude toward gold and silver would change. The charts woujld look very different than they do today, and so it is difficult to address the hypothetical. I don't know why you selected those 10X and 1,000,000X numbers, when my price targets stand at $2,000 and $100.

Comment #18 seeks to put words in my mouth, so I'm incliced to ignore that one.

I appreciate the line of questioning and what you are trying to get at ... but please understand that is about as much time I can devote to the point.

Sinch

Report this comment
#20) On May 19, 2011 at 10:30 AM, silverminer (30.62) wrote:

walt373

P.S.  0.00000001 in comment #14 was intended as tongue-in-cheek.

Report this comment
#21) On May 19, 2011 at 10:35 AM, walt373 (99.81) wrote:

OK, thanks for the comments. Finding a moon made out of gold and silver, good one lol :D

Report this comment
#22) On May 20, 2011 at 8:28 AM, skypilot2005 (< 20) wrote:

"On May 16, 2011 at 10:11 AM, TMFSinchiruna (98.79) wrote:

Great news for Quadra FNX:

http://www.mineweb.co.za/mineweb/view/mineweb/en/page36?oid=127104&sn=Detail&pid=102055 "

Some additional information as a result of a few minutes of cursory D. D.:

TSX:  QUX

US: QADMF

http://www.smm.co.jp/E/uploaded_files/110516e.pdf

http://www.smm.co.jp/E/

http://biz.yahoo.com/ic/56/56895.html

Quadra FNX Mining Announces Earnings of $168 Million in the First Quarter of 2011

 

http://www.quadrafnx.com/s/News.asp?ReportID=455439

No offense Sinch but, this link has information with greater detail than the link you provided.:

May 16, 2011
Quadra FNX Partners with Sumitomo & Announces Feasibility Study Results for Sierra Gorda Project, Chile

 

 

http://www.quadrafnx.com/s/News.asp?ReportID=457218

I know.  There is nothing worse than an insubordinate web link assistant.....  :)

Sky Pilot

Official Web Link Assistant to Sinch.

 

 

 

 

 

 

Report this comment
#23) On May 20, 2011 at 9:37 AM, skypilot2005 (< 20) wrote:

see #22, above.

Additional links:

http://www.reuters.com/article/2011/04/19/quadra-victoria-idUKN1927129220110419?type=companyNews

 

UPDATE 2-Quadra outlines resource at Victoria project

http://www.reuters.com/article/2011/04/17/farwest-sales-idUSN1717953420110417

Sierra Gorda:

http://www.quadrafnx.com/s/SierraGorda.asp

 Sky Pilot

Official Web Link Assistant to Sinch

 

Report this comment
#24) On May 20, 2011 at 9:52 AM, catoismymotor (24.55) wrote:

Sky,

I'm about to add you to my favorites. Thank you for the work you've done so far. I know that Chris appreciates your contributions, too.

All the best,

Cato

Report this comment
#25) On May 20, 2011 at 10:51 AM, skypilot2005 (< 20) wrote:

“On May 20, 2011 at 9:52 AM, catoismymotor (96.19) wrote:

Sky,

I'm about to add you to my favorites. Thank you for the work you've done so far. I know that Chris appreciates your contributions, too.

All the best,

Cato”

Thanks. 

Sinch hasn’t mentioned how long the probationary period is for my new position as his Web Link Assistant so, I am feeling a little pressured. 

I haven’t felt this much pressure since losing the original copy of my prenuptial with #3.  I eventually located it at  #4’s house.  She found it and I said, “Speaking of Pre Nup…………”

Your support helps ease the pressure.  I appreciate it.

Sky Pilot

Web Link Assistant to Sinch

Report this comment
#26) On May 20, 2011 at 11:26 AM, skypilot2005 (< 20) wrote:

Link relating to consumer Gold demand:

 http://finance.yahoo.com/banking-budgeting/article/112783/china-top-gold-bug-wsj?mod=bb-budgeting&sec=topStories&pos=1&asset=&ccode=

An excerpt:

"Global gold investment demand increased by 52% to 366.4 tons in the first quarter, helping offset a 56-ton outflow from exchange-traded funds, which are popular investment tools in the West."

Hmmm....

Sky Pilot

Web Link Assistant to Sinch

Report this comment
#27) On May 20, 2011 at 4:16 PM, TheChronos (98.31) wrote:

Sinch, well-written as usual.

 I would agree that regardless of whether or not silver was overpriced as of late, over the longer term it will end up in one of the two scenarios you have laid out.

 As for one of the impetus' that may drive such an upward move, if any number of events happen which cause even a small amount of loss of faith in the dollar, more states (and perhaps even countries) may enact a "legal tender law", as UT has already done.

If this is done, it seems it will provide PMs with an unprecedented venue for price increases vs. the US dollar.

http://www.coinworld.com/articles/utah-enacts-legal-tender-act-for-federal-gold/?utm_source=OB_traffic

Perhaps this action is a move towards a true global currency, perhaps it is simply a message in a bottle to congress.

Report this comment
#28) On May 20, 2011 at 4:34 PM, IIcx (< 20) wrote:

TMFSinchiruna,

Great post, I didn't take the time to read the comments so I hope I'm not restating.

IMO, Silver speculation is doomed. Its a commodity that's required for solar and at these levels will only encourage the reopening of mines and additional delivery.

There's also the dumping that the ETF funds are required to do as well as the ultimate crash when bail out Fed policies finally end.

About the only situation that could drive silver up again would be panic over a default and a crashing USD which isn't very likely given the EC mess and the tragedy in Japan.

The Commodity trade appears to be over until the markets unravel the end of the Fed easing?

Report this comment
#29) On May 23, 2011 at 10:52 AM, XMFSinchiruna (27.47) wrote:

TheChronos

I am told there is serious discussion ongoing in Mexico with respect to remonetizing silver.

IIcx

I'm glad you enjoyed the post. Respectfully, I disagree wholeheartedly with each and every one of the subsequent statements you made above.

Report this comment
#30) On May 28, 2011 at 10:05 AM, skypilot2005 (< 20) wrote:

FYI:

I ran across these, this AM.  They are dated so, I am not sure if, they are still relevant.

Sprott on Gold vs. Silver after the Selloff 5/10/11 http://www.resourceinvestor.com/News/2011/5/Pages/Sprott-on-Gold-vs-Silver-after-the-Selloff.aspx

 **

Miners cling to their sizzling silver streams

3/25/11

 

http://www.reuters.com/article/2011/03/25/us-mining-summit-silver-idUSTRE72O44920110325

 

"We believe that the number one area for investment in the future within the precious metals is silver," said Sprott Inc (SII.TO) Chief Executive Peter Grosskopf. "If anyone is selling a silver stream, we'd happily buy it."

Grosskopf sees silver as undervalued compared to gold, and believes the price should be closer to $90 an ounce within the next 12 months or so.

 

Sky Pilot

Official Web Link Assistant to Sinch

Report this comment

Featured Broker Partners


Advertisement