Take look at the five-year chart for silver, then you can appreciate both why silver investors are so anxious and why they really have nothing to worry about. True if you bought silver 19 months ago when it hit $48.50 an ounce ready for an exponential take-off then you have reason to be annoyed.
However, silver did not break its $50 all-time high at that point and fell back into a trading range. Our old friend Gerry Schubert at Emirates NBD Bank still holds the record for having placed the highest priced order for silver ever back in 1980 as a young trader.
Then again anybody who bought silver in the run up to $30 has not lost money, and the long-term trend is still upwards. Silver will only recover its mojo when gold prices begin to advance again.
As readers of ArabianMoney will know there are some very hopeful indicators of a gold price advance early in the New Year.
The Chinese are planning to launch a gold ETF and double their gold consumption to 1,000 tons per annum over the next three years (click here). Goldman Sachs is currently fixing the market so that it can go long for the next price advance (click here). And the central bank printers of money are going into overdrive (click here).
Silver almost always rises in tandem with the gold price and outperforms by a factor of two over the very long-term. The gold price rose by about half as much as the silver price in the first decade of the 2000s. It is a reasonable expectation that it will do the same in the final stages of the precious metals boom.
Boom Over, No Chance!
Is this boom over as Goldman Sachs is saying “might” be the case, although not with much conviction? Well two things are missing: commodity market booms always end with a price spike, and that is exactly what investors are complaining about not having seen; and retail investment interest in the precious metals remains very low by comparison to say the rush into gold and silver witnessed in 1979-80.
There are no queues down the road outside gold and silver shops, though we note that most large towns do now have somewhere to buy and sell precious metals and that was not true a decade ago. So when the retail investors finally bite they will be able to buy.
When people you know who are not very investment savvy begin to say they are buying gold and silver and the man sitting next to you on the Dubai Metro is looking at gold prices then it might be time to worry seriously about the sustainability of precious metal prices.
But we are far from that date, or at least 12-18 months.