Silver Market Update

February 24, 2011

Timothy Silvers

          With silver double what it was last year, I have been receiving more requests for my thoughts on the market. I started buying silver 10 years ago when it was cheap. At the time I was preaching to anyone who would listen how undervalued silver was and how it was a "can't go wrong" investment. As recently as 2005, I felt that the fair value of silver, based on production costs, was somewhere between $15 and $25 an ounce. I didn’t buy or recommend silver expecting to sell at fair value, because assets that are undervalued tend to overcorrect when they rise in price until they become very overvalued.

          When I look for an investment, I choose things that are obviously selling below their worth or things with a pretty much guaranteed rate of return. I can’t get too excited about buying silver at current prices because it is no longer a cheap "sure thing". Short term (this year), any number of factors could knock silver down 20-30%. While there are signs of stability in the US economy, there is still a huge problem of over-indebtedness in developed countries. Various stimulus measures have only pushed the problem further down the road, not solved it. I’m also concerned that the China “miracle” economy is responsible for a significant portion of the run up in commodity prices. However, factors like inflation, bad debts, social unrest and reduced exports could negatively impact their economy and send shockwaves through the commodities markets and the rest of the world.

          Long term (3-5 years), I still think it's likely for silver to hit $100-150 an ounce, as gold and silver continue to benefit from increased investment demand, as investors have fewer options to earn a decent rate of return. If you don't have any gold or silver, then I think you should buy both, as a kind of insurance policy in uncertain economic times. Silver and gold have gone up significantly since August without a meaningful pullback. When that pullback happens, silver will get knocked down more than gold, percentage wise. I will probably buy more silver when it pulls back to its 200 day moving average (dma) which right now is around $23. Sooner or later, silver will pull back to its 200dma but it is also possible that it will continue going up for a while longer before it pulls back. The best strategy is to accumulate gold and silver on weakness or dollar cost average your purchases over time. If you already have a comfortable quantity of gold and silver, then don't worry about the day to day fluctuations of the market. Wait until everyone and their brother are talking about buying gold and silver, then sell and move on to something else. That is probably the best advice I can give on timing this volatile market.

          This is the last email update I plan to send on the precious metals market. I decided to stop the mailing list service because I have not been spending enough time closely watching the markets to offer relevant, timely advice. My life has taken other turns and I’m finding it more rewarding to enjoy life and focus on things other than investing and the pursuit of money. Whether you’ve been a follower of my analysis for many years or just a short while, I appreciate your interest in my work. Please continue to check out my website www.silverbrothers.com periodically. It has plenty of useful graphs and links and also my unique Sum of Dollars Short Chart. I will try to keep that updated monthly, as I haven’t seen anyone else produce anything like it, and it has proven to be a good indicator of lows in the price of silver for many years.

Best wishes on your investing and future and God Bless,

Timothy Silvers

www.silverbrothers.com

 

Disclaimer: This article represents the opinions and personal views of Timothy Silvers and is not intended to be investment advice. If you choose to use this analysis for your personal trading, Timothy Silvers assumes no liability for the direct or indirect losses you may incur due to using this article to make your investment decisions. You are totally and completely responsible for your own investments. At any given time, Timothy Silvers or his friends and relatives may have positions in silver related investments that may or may not follow the recommendations contained in this article. The information in this article may not be completely correct and accurate. Even though Timothy Silvers has done his best to review the content and accuracy of this article, he is in no way liable or responsible for any mistakes or omissions.