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In today's dollars and adjusted for inflation that would equate to an inflation adjusted average price of some $60/oz and $44/oz in 1979 and 1980. It is for this reason that we believe silver will be valued at well over ..
11 Feb 2010
By Mark O'Byrne
Silver remains very undervalued on a historical basis and is undervalued even against gold. While gold has begun to receive some interest from a small minority of retail investors, silver remains the preserve of relatively few contrarian investors and the media and financial press rarely, if ever, covers silver. And yet silver is quite likely in the intermediate stage of a bull market that will rival or surpass that of the 1970s.

Silver is currently worth less than $17.00 per ounce. It rose to a recent nominal high $20.88/oz in March 2008. After an 18 month period of correction and consolidation, silver looks set to challenge that high in the coming months. We continue to be bullish on gold and particularly silver and believe that silver will likely surpass its non inflation adjusted high of $48.70 per ounce and its inflation adjusted high of some $130 per ounce in the coming years.

Why Silver is in a Bull Market and How High Could it Go?
Precious metals has been the best performing asset classes in recent years with gold and silver outperforming equities, property and most asset classes over a 3, 5 and 10 year period. This outperformance looks set to continue in the coming months due to the very bullish fundamentals. The primary reason for our bullish outlook on silver is due to the continuing and increasing global macroeconomic, currency and geopolitical risks; silver's historic role as money and a store of value; the declining and very small supply of silver; significant industrial demand and perhaps most importantly significant and increasing investment demand.

Gold, oil and nearly every major commodity, stock indices and property market surpassed their record highs in recent years. Favourable supply and demand factors, continuing global macroeconomic and geopolitical risk and concerns regarding the emergence of inflation and stagflation as the massive global monetary and fiscal reflation affects the value of fiat currencies all point to higher silver prices in the long term.

In the 1970s silver rose from under $1.50/oz in 1970 to nearly $50/oz in 1980. Thus, silver rose by more than 25 times or by more than 2,400%. Were silver to replicate its performance in the 1970s, it would have to rise by more than 25 times again. The average price of silver in 2001 was $4.37/oz and 25 fold increase would result in silver rising to over $110/oz. While this price target may seem outlandish to some, it is worth remembering that silver's record high in 1980 adjusted for inflation (according to US government inflation figures) was some $130/oz.

Admittedly, the final phase of the silver blow off was a speculative bubble as the billionaire Hunt brothers attempted to corner the silver market. Unlike in 1979, today there are hundreds of billionaires, some multi billionaires, thousands of millionaires, hedge funds and many sovereign wealth funds. Small allocations by any of these will see sharp moves up in the price. Indeed, the silver market is so small that it could very easily be cornered again (as appears to be happened in the tin market in recent weeks). > Is Silver About Returns or a Hedge Against Inflation & Systemic Risk?

Silver is a hedge against macroeconomic, systemic and inflationary risk with the attractive added potential for significant capital gains. Real asset allocation and prudent diversification would be an important reason to have an allocation to silver. Silver is highly correlated to the safe haven of gold and is in effect a leveraged sister of the precious yellow metal. Thus, informed investors use gold more for wealth preservation purposes and silver in order to make a return.

Silver: Declining Supply
In 1900 there were 12 billion ounces of silver in the world. By 1990, the internationally respected commodities research firm CPM Group say that figure had been reduced to around 2.2 billion ounces of silver. Today, that figure has fallen to less than 1 billion ounces in above ground refined silver. It is estimated that more than 90% of all the silver that has ever been mined has been consumed by the global photography, technology, medical, defence and electronics industries.

On current supply/demand trends, the amount of above ground refined silver is projected to shrink to even lower levels in the coming years. Industrial demand has been outstripping mining supply for most of the last 20 years, driving above ground supply to historically low levels. Few in the investment world are aware of this important fact.

Silver production has been flat in recent years while demand has been increasing. This hasn't resulted in significantly higher prices yet because the world has been able to fill the gap from inventories and official government stockpiles.

However, today the U.S. government's stockpile is all but gone, and sales from other official sources, such as China, Russia and India, are declining, too. The decline in refined silver stocks, from around 2.2 billion ounces in 1990 to around 300 million ounces today means that silver stocks are near an all time low.

Very importantly, silver is very unusual as its supply is inelastic.

This means that silver production will not ramp up significantly if the silver price goes up. Supply didn't increase significantly in the 1970s when silver rose more than 35 fold in price - from $1.40/oz in 1971 to a high of nearly $50/oz in 1980. Importantly, silver is a byproduct metal and some 80% of mined silver is a byproduct of base metals. Higher prices for silver will not cause copper, nickel, zinc, lead or other base metal miners to increase their production. In the event of a global stagflationary or deflationary slowdown, demand for base metals would likely fall thus further decreasing the supply of mined silver.

There are only a handful of pure silver mines remaining - many with depleting reserves. This inflexible supply means that we cannot expect significant mine supply to depress the price after silver rises in price. It is extremely rare to find a good, service, commodity or investment that is price inelastic in both supply and demand. This is another powerfully bullish aspect unique to silver.
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COMMENTS (9)
Manish
23 Apr 2011
The Price of Silver mentioned in your discussion above says, Silver was 1.40/OZ in 1971 and nearly $ 50/oz in 1980 it has to be $5/oz in 1980 please have it re-corrected as your details on the topic of silver is valuable now and for years to come Regards Manish Singhani
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Blue
14 Apr 2011
Silver is at a Price of 41.2-5 Us $$$ april 14
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Blue
14 Apr 2011
invested 50 bucks in 1 troy ounce of silver nugget's im soooo poor, i could use 100 or 200 bucks at the end of the year, maby more if i invest more
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Joe
26 Dec 2010
mark my words everybody. i made a small fortune trading slv options in 2010.I told some of the financial experts that i know how silver will hit 30 dollars by the end of 2010 and they laughed at me. They arent laughing anymore.i will make another prediction now. silver will hit $55 to $60 dollars per ounce by the end of 2011.i will be very happy in 1 year.
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Shyamgoel
12 Dec 2010
give me a target for silver 2011 to2012
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Mansukhlal
20 Nov 2010
silver high level in hits
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Cary
07 Nov 2010
I tend to agree with Ron. As of today, 11/6/10, gold stands at $1393 and silver at $27.76. Oil is at a 2 year high near $86. While it is psychologically difficult to buy at the record metal prices, I still plan to buy , as these prices will appear to be bargains when gold hits $2000 in 2012 and silver hits $55. Those are my predictions. Those numbers could even come sooner than that.
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Ron
14 Oct 2010
This article needs to be updated as silver is close to the 24.50 d0llar mark(10-14-2010) .I predict silver will get higher in the future, while i cant tell you in what month or specific date, I can tell you it will be going higher in the future .When anybody puts a number on silver, they give you an amount knowing that ecventually in due time or be it years from now, it will hit the mark .but the star of the show has Been gold recently ,a person who would have bougt 10 ounces 2 years a go for 900 bucks, is now sitting at , 1,455.00 , thats a 55 dollar profit in just 2 years ! anyways, as the government goes Rogue and allows the pre oplanned economic collapse of america , the countdown continues.Dont be surprised to see strange and drastic market swings as the situiation will get crazy . More people will become dependant on Government as many will further be unemployed and many more joing ing the foodstamp program as that is all they have left . corporate Representatives in congress will assure us that this will happen regardless of what political party . Dam the torpedos !!!
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Pankaj
11 Feb 2010
You had written in comming years silver will touch 50 dollar mark, this is no statement until you clearly mention the specific period. The reasons which you had given for its increase is understandable.
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