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It has been a very good year for silver and 2006 should be at least as
good. We’ll skip the “nothing goes straight up” rhetoric
and get right down to it. Looking in the rear-view mirror at the year past we
reflect on what it has or has not done for you - the silver investor. We find
a great deal of satisfaction in proving the nay-sayers
were wrong yet again.
Silver started the year in the $6.50-$7.00 area and
is likely to end it in $8.50-$9.00. While gold made its way into the headlines
with its recent run-up to $540 an ounce, silver is still flying largely under
the radar of mainstream capital. In itself it should be a good thing for
silver investors indicating that better times are still ahead. Don’t
forget that about 80% of the move in the price of an asset in a bull market
comes during the last 10-20% of the time. Of course, at this point it is
unknowable when that time arrives but based on market perception and the
attention paid to silver, the culmination of this bull market is still years
away.
Forecasting future prices is a silly exercise. Nevertheless,
about 15 months ago your author did make a bet that in 2005 silver price
would get above $9. The reason we bring it up is because the counterparty at
the other end of this bet was a man who lives in one of the richest silver
districts in North America and is no rookie
when it comes to understanding the economics of silver mining. To us that
signifies the level of disbelief in the silver sector.
Despite all odds or perhaps owing to them silver
continues to outperform gold. This is against a back drop of a number of high
profile myths in the marketplace, such as “digital photography will
kill silver”, “Indian peasantry will flood the market (with scrap
silver)”, “silver is not money”
and so on. Some of these points of view are advocated by very influential
voices in the business. Long time followers of the gold and silver markets
will recall bearish forecasts of Andy Smith of Mitsui Global which were
completely blown out of the water and while we’re at it, with all due
respect, we’ll let Bob Prechter have it: for
someone of his standing in the markets, in our humble opinion, the man has to
come out and admit when he is wrong.
If you needed any further clarification after all
the hoopla around the silver ETF, Barclays Global Investors tipped their hand
once more by forecasting that “Silver may rise 18% from
this year’s high to $11 an ounce in 2006”. That flies in
the face of most mainstream outfits that tripped all over themselves in a
rush to up their projections for gold.
It can be scary when the likes of JP Morgan Chase
come out with a “bullish” outlook on silver. This investment bank
sees silver prices to average a whopping $6.93 in 2006 as parleyed in this
article which revised upward the bank’s
silver price projection for next year. HELLO!! How do these
people sleep at night and collect obscene salaries all the while getting it
wrong nine times out of ten? I will bet my rent money that average price for
silver in 2006 will be above $8.00. That is a double digit percentage
difference. I would like to see the job description for silver analyst at JP
Morgan. What amazes me is not en masse poor calls
from all types of analysts on Wall Street, but at the fact that it is
tolerated by investors and the media.
By the same token we reassert our view that silver will continue to outperform gold in
the coming years as repeatedly stated on these pages. As of this writing Gold/Silver ratio stands at 59,
down from 62 in October 2005.
 
For the record, it was around 72 at the start of
2004 on its way down from 80+ in years prior. We don’t mind that gold
gets all the glory, we are happy to have our silver investments do better
than gold. To be sure, we like gold. We’re just trying to fill the void
and provide some factual information about silver for your perusal. In the
meantime we’ll patiently wait for non-believers to convert into silver
bugs and discover that, indeed, silver is worthy of attention.
We’ll take this opportunity to thank those
correspondents who wrote us warning about betting the farm on silver due to
its treacherous nature. It is true that silver price is very volatile and not
everyone can stomach it. In response to our last article one reader
wrote that his Canadian dividend fund has outperformed silver in spades. As
you read above silver did show double digit return in US Dollars in 2005 and
if you are doing better with dividends in Canada that is pretty impressive.
On the other hand, relative under-performance of silver in select currencies
is a foreign exchange phenomenon. Silver
recently broke out in most currencies and going forward should perform well
no matter what the currency is. That said, one should be
thankful that silver is not the best performing asset class… yet. When that day
comes things could get pretty
ugly.
By : Sean
Rakhimov
Editor, www.silverstrategies.com/
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