by: The Society
November 22, 2009
From a speculator's perspective, the total return potential now in silver is probably greater than gold.
On a percentage basis, the price of silver can easily outpace gold over the next few years as both metals hit record highs after adjusting for inflation since 1980. Silver might achieve that goal far more quickly than gold.
But as gold reaches over $1,145 this week (+10% in November) there's one missing ingredient required to legitimize this historic bull market; silver must exceed its March 2008 high of $20.78 an ounce. Spot silver trades at $18.71 an ounce this morning in New York.
The failure of silver to confirm new highs in gold prices is the only dangerous signal flashing for gold bugs in late 2009.
However, I do expect silver to breakout shortly and confirm the primary trend in gold. Indeed, this trend may have already started with silver breaking-out sharply over the last several days (see chart below).
Silver Should Keep Rising…
Birds of a feather flock together.
This old adage is especially true in the precious metals arena whereby gold and silver tend to rise or fall in tandem. Silver has lagged gold over the last several weeks as the latter has hit fresh nominal highs this year while silver remains $2.07 an ounce below its highs this decade. Silver hit an all-time high of $50 an ounce in 1980.
Adjusted for inflation since 1980, silver prices should trade north of roughly $128 an ounce now…while gold should fetch at least $2,200 an ounce.
Metal Money
Silver, unlike gold, is more of an industrial metal used in a wide array of applications, including photography, dentistry and electronics. Its performance is more tied to the global economic cycle than gold and therefore is not to be confused as a pure hedge against monetary chaos or financial turmoil.
Though silver will almost always follow gold, I still prefer the yellow metal as a better store of value. Earlier this month the Indian central bank purchased 200 tons of gold from the IMF; no central bank, however, has amassed silver this decade.
My target for gold remains about $2,500 an ounce in this bull market and about $75 an ounce for silver. If that's remotely correct then silver can gain another 300% from current levels compared to 118% for gold. If silver reaches its approximate 1980 inflation-adjusted equivalent then prices can surge another 575% from current levels.
I began making these forecasts on gold and silver seven years ago at various seminars for The Sovereign Society. At the time, investors would look at me wondering what planet I came from. Not anymore.
When?
Bull markets are like a rubber band. The primary trend is always exaggerated much longer than we can anticipate. And in the age of violent capital markets, aggressive central bank printing and the prospect of higher inflation over the next several years it's no wonder investors and even central banks are accumulating gold. Smart people increasingly distrust paper money.
What will kill this bull market?
The only event that's likely to derail gold and silver is higher U.S. and European interest rates. Until the opportunity cost of holding gold and silver are compromised by higher paper money rates of interest, this bull market will run its course. And fortunately for the bulls, the Fed won't be in any position to aggressively hike lending rates any time soon because credit intermediation remains badly fractured while bank balance sheets are still in repair mode.
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