Since silver reached our target of $50 last year it has been in a treacherous downhill descent. The depth of the decline in precious metals is approaching 2008 levels, and many mining stocks are at 2009 price levels.
In an economic environment such as the current one, it may be necessary to hold precious metals as a store of value in order to preserve wealth, however income producing capital investments are necessary for growth over the long run.
The summer doldrums likely marked the bottom of this correction, and the metals have turn the corner higher. However, both gold and silver investors will likely have their resolve tested once again in the coming weeks before the metals are able to break higher.
Silver may have seen a near term local top but it has not seen the bull market top. It's in severe backwardation, speculators are selling, commercial shorts are unable to cover and major bullion dealers struggle to meet increased investor demand.
This is extremely bullish for the long term price of silver because once the commercial banks are long, there will no longer be a financial incentive to cap the price. A similar pattern occurred in oil before its run from $50 to $150 in 2007 and 2008.
The concept of limited liability was engineered to protect businesses from losing more than all of their capital, but it is now being abused by corporations and governments who use it to externalize excessive risk.
With gold and silver prices surging higher, some investors are questioning whether mining companies are entering their own valuation bubble. While some silver miners are up three or even 10-fold from lows they are much still cheap.
Global crude oil production has leveled off at 74 million barrels per day. However, now that economies are recovering, consumption levels are back on the rise and the result will be an inevitable rise in oil prices.