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Saturday, March 5, 2011

Silver Correction Coming...

Silver prices are due for a correction some time soon, within a month I predict. We keep hearing stories about tight supply when the fact is that in the retail market of bars of 100 ounces or less there seems to be no problem. The real tightness comes from the commercial side of the market where 1,000 ounce bars are virtually non-existent.

When you dig deep enough into the goings on behind the market you begin to realize that much of the reporting that is being done is only half-truths. A good example is the Canadian Maple Leaf. The media has been reporting that the Royal Canadian Mint is having trouble keeping up with the demand for the coin. While that is true, they don't report the reason. The force behind the shortage is not just demand, but that they're main production is 1,000 ounce bars and that market is tight, with everything they have been producing already purchased and awaiting delivery. Therefore they are having issues sourcing enough silver to meet the demand for the 1,000 ounce bars which in turn cause them to not have enough raw material for the 1oz rounds.

China's population has begun to catch up to the west in terms of gadgets and conveniences. The huge increase for cell phones and general modernization has caused pressure on the silver supply as China, who was a net exporter in 2007, to become a net importer. Their own mining efforts can't keep up with the demand so they import what they need. This also has put pressure on the mining industry and they are playing catchup. 

Further the price of Gold is causing it to not be an alternative to many folks that are not large investors, so they are turning to silver for investment. While an excellent idea, it is also putting pressure on the silver mining industry.

Over the next few years silver will continue to climb and be much higher than it is now. But, as with every investment indicator there are always corrections and gold and silver are due for one shortly. I believe once it hits $40.00 an ounce it will correct and become an opportunity to get it at a discount price. Increase prices at the pump and at the grocery store may slow or affect it's meteoric climb for a while as the everyday buyer is forced to put more of his money into living expenses and less into wealth protection.
However, with it's predicted high in two years I would recommend buying it at any dip as the overall price will be close to $100.00 per ounce within 5 years. Continue to watch for dips and buy when and what you can, either you'll be telling yourself I'm glad I did or you'll be saying I wish I had.

1 Comments:

Blogger Atreides said...

I agree,

If you want to hedge the depreciation of the dollar with precious commodities, I would go long gold rather than silver. Silver is at all time high against Gold. If you are long gold you would have the tailwind at your back rather than facing the headwind.

Silver Intrinsic Value Update

March 5, 2011 at 10:06 PM  

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