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Ryan Jordan

Ryan Jordan

Ryan Jordan has been blogging about the precious metals since 2010. However, his interest in the precious metals markets spans nearly 20 years as both…

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A Bottomless Gold and Silver Price?

After news of the fourth highest sales figure for silver eagles ever, it is important for any trader, investor, or asset manager not to forget why silver could mount a serious comeback some day soon. At the moment, you also have a clear choice between buying a deeply oversold asset at a 60% discount, or a choice of buying into a stock market making all time high after all time high, having appreciated nearly three times off of its lows of just five years ago.

Assets do not fall forever, contrary to what some people seem to be saying right now, or implying right now regarding the precious metals sector. Psychologically, it is the easy thing, the understandable thing for traders or investors in the precious metals space-- who likely have post-traumatic stress disorder after last year-- to project ever lower prices indefinitely for silver or gold. This habit was also learned during the downturn. All of the people (myself included) who didn't think there was much chance of silver staying below 30 dollars, or 26 dollars, or 22 dollars for any length of time, were made to eat their words last year. But don't fall for the trap of feeling that every rally should be shorted forever, or that every rally will simply follow with a new low. This is the mind game of the market having its way with you.

Many commodity markets (including silver) experienced three or four year downturns before making spectacular reversals. In the case of silver, this bear market has been among the worst since silver began trading publicly in 1963. The only worse collapse was the one from 1980 to 1982. But that particular collapse, as you should know, followed one of the most dramatic bull moves of any market in recent history, where silver nearly went up 10 times in the space of 4 years. And, I might remind you, the price peak of silver in 1980, at just around 50 dollars, would need to equal somewhere around 150 or 200 dollars an ounce to reflect for government reported inflation since 1980. In other words, I don't think that the price peak in 2011 came anywhere near representing a secular peak for silver. Of course, who knows how the price of silver trades in the years or decades ahead. It may very well continue to frustrate both bears and bulls by going nowhere for a while, then zooming up to 30, back to 20, and then to 40, and then flat-lining at a level somewhat higher than today, but lower than 50 dollars. And then, perhaps one morning after some unforeseen event (ranging from an industrial shortage, to a rule change at the COMEX, to some less pleasant blackswan event) the price of silver may all of a sudden be revalued higher 5, 10, or 15 times. Who knows.

The idea is not to bet the ranch on silver, but to realize the vast number of reasons for why this metal could move higher in the years (decades?) ahead. And realize this can happen with an unpredictability that will likely shock even the most hardened of market veterans.

This remains the long term picture for an in-demand monetary and industrial metal, out of favor at the moment, but likely not forever.


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