An upward trend is afoot in the silver space, says Sean Rakhimov, editor of SilversStrategies.com. Rakhimov believes that at $26/ounce the reversal of the downward trend in silver will be confirmed and silver investors should set their sights on the next resistance level—$32/ounce. And if that threshold is breached, silver will test $50/ounce and more. In this interview with The Gold Report, Rakhimov talks about a few silver miners that are well positioned to ride this trend perhaps several multiples higher.
The Gold Report: The Washington D.C.-based Silver Institute reports that net silver demand has exceeded net silver supply each year since 2004, with a supply deficit of 113 million ounces (113 Moz) reported in 2013. Why hasn't that trend translated into dramatically higher silver prices?
Sean Rakhimov: First, I don't put much faith in these numbers. For instance, CPM Group has somewhat different numbers. Either way, silver supply and demand have been roughly in equilibrium, in my opinion, over the past decade or so. Second, silver manifests itself as a precious metal in times of crisis or uncertainty. When it's business as usual, silver acts more like a base metal and trades more on supply and demand numbers. Silver prices will respond during a crisis as its perception changes from an industrial to precious metal. That's when you will see more of what we saw in 2011 when in the space of about six months silver went up three times. Another period like that is coming.
TGR: In early June we started to see stronger precious metals prices and that has carried through. Is this a trend?
SR: It is the beginning of a trend. Precious metals characteristically start going up after a prolonged decline, yet early in the reversal they rarely inspire any confidence because the last dozen or so similar moves fizzled after a 10–20% move. This could be one of those. Silver is at $21 per ounce ($21/oz) now, maybe next week it will test $18/oz again. It's anybody's guess but I believe that toward the end of the year we'll probably see higher numbers—maybe substantially higher.
TGR: Is there a telltale sign that shows investors that this upturn is real?
SR: There isn't one that I use. It's more of a gut feeling.
TGR: The existing silver fix mechanism expires on Aug. 14, 2014, and methods to replace it are currently being reviewed by the London Bullion Market Authority. Is a new silver fix system likely to yield stronger silver prices?
SR: It's likely. This new replacement for the silver fix would, at least for the next year or two, have less tinkering with it than had historically been going on with the fix. On that basis, the price should become more volatile. On balance it's probably going to be positive for the silver price.
TGR: What are your thoughts on the silver space?
SR: In this semi-stealthy firming up of silver instruments and investments, there is not much fanfare. Silver is certainly out of favor at the moment, which leads me to remember that it's always darkest before the dawn. And I believe that this is going to reverse itself in short order.
Lately I've been thinking about some passages from the thinly disguised biography of Jesse Livermore, Reminiscences of a Stock Operator by Edwin Lefèvre. He wrote, "There's a lot of early bulls in a bull market." I've been an early bull in a bull market for precious metals going back to the early 2000s. Many people exit along the way but Livermore's idea was that investors have to stick with it for the entire cycle. That's what I've been telling myself. Of course, convictions are tested along the way, such as during the last couple of years.
Silver is a little like water in that if you tell people you should invest in water, the first thing people do is look at you like something is wrong with you. Yet fresh drinkable water is a scarce resource. Silver is so familiar that it lulls people into this idea that it's not important. Unsophisticated people align it with gold, yet the fundamentals for the two metals could not be more different.