Guest Post: Why I'm Buying Silver At $30

Tyler Durden's picture

Submitted by Jeff Clark of Casey Research

Why I'm Buying Silver at $30

The silver price has bounced 27% since January 28, a huge advance for a measly 16 trading days. It's already soared past its 2010 high and was selling for less than $16 this time last year, a double in 12 months. So, is it pricy? Or should we ignore the run-up and keep buying?

I've read a few articles that say we should expect silver to drop to the $25 level, and one pinpointed $22. Others, of course, see bullish tea leaves for the near term and believe it's headed higher. Of those that assert silver will decline, most believe it will be temporary, though one writer claims the bull market in precious metals is over (I think he's a holdout from the gold-is-a-bubble camp).

These authors could be right about a near-term decline, but I'm less concerned with what the price does this month or even the next few months, and more focused on where it's likely headed over the next few years. Caution: the chart ahead may cause excitement.
While there are lots of reasons to be bullish on silver, what everyone really wants to know is how high the price can go. Here's one hint, based strictly on historical price performance.

Silver rose an incredible 3,646% from the November 1971 low of $1.32 to its January 21, 1980 high of $49.45 (London PM fix prices). Our current advance, through February 4, is 596%. At $30, silver would have to climb over five times to match the last great bull market. If it did, the price would hit $160.89 per ounce (from its bottom of $4.295 on March 30, 2001).
You'll also notice silver has a record of outperforming gold in these two bull markets. In spite of the price dropping 26.9% in 2008 (while gold gained 5%), the metal has outrun its yellow cousin by 38.6% since their respective lows in 2001.

Gold advanced 2,333% in the 1970s; it's currently up 430%. If it matched the last run, the price would hit $6,227.26 per ounce, a return of four-and-a-half times the gold you buy today.

From solely a historical price perspective, the chart certainly suggests we've got a long way to go with both metals. The question is if the fundamentals support such price advances (show me a healthy dollar and no threat of inflation, and we'll talk), but my point for the moment is that there is an established precedence for the price of these metals to climb much higher. And just as important, to keep one's eye on the big picture.
So, yes, I'm buying silver at $30, in part because I think the potential for enormous gains is high.
However, I'll add that I'm not draining my cash account to do so. I think it's important for the precious metals investor to always be in the game, but given silver's volatility and the precarious nature of most markets right now, prudence suggests we keep some powder dry as well.
Let's say one of the soothsayers noted above is correct and silver temporarily falls to $25. If you snag it at that level, your endgame return would be 543%, vs. the 436% gain from $30 (excluding premiums and storage costs). That's more than another 100% gain on your original investment.
But how does one buy silver not knowing if the price will plummet or soar? For example, silver could take off from these levels, never to see $30 again, leaving those of you waiting for a sell-off out of the market. Or it could sink to $25, making investors who went all in now regret they didn't wait for a better price. Or it could trade sideways until, say, next fall, leaving both parties uncertain and on the sidelines.

In my opinion, there's a one-word answer to the question. It solves all dilemmas – it keeps you in the market, while simultaneously letting you buy at lower prices if that occurs. It lets you build your position bigger and bigger without the worry of whether you're getting a good price.

That one-word verb is, accumulate. Or in the vernacular made popular in the '80s by the financial planning community, dollar cost average. In other words, buy a little now, buy a little next month, etc., until you have a position sufficient in size to fight off inflation and any other economic woe we're likely to encounter over the next few years.
So my advice is, buy, hold, repeat. Because if our silver market ends up looking anything like that left bar in the chart, you may regret not having bought at $30, too.
[By the way, we updated the numbers on the market cap for Pan American Silver from our article last week… check out how tiny one of the largest silver producers is compared to other popular stocks here.]

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Whizbang's picture

You're buying PMs for the same reason everyone else is, short term ultra-leveraged investment for short term gain. Good luck

tmosley's picture

10 years is short term?

Are you an immortal?  THERE CAN BE ONLY ONE!

malikai's picture

My timeframe is 18-20 years. Perhaps by then these silly 2010 eagles will be valued not on the metal, but as collectors items of a lost empire.

RockyRacoon's picture

Is it possible to build a blog-bot that snags the top spot for its trolling?

Sure looks like it, eh?

Imminent Crucible's picture

There's no point in talking about a dollar price for silver, or gold either--unless you're just in it for a short scalp.

I've been in the silver trade since it was $4 per oz., and I'm not about to trade it for paper dollars that are debasing at the fastest rate of my lifetime.

If silver went to $5000 per oz., would you trade an ounce of silver for 5,000 worthless federal reserve wipes that wouldn't buy you a gallon of gas?

Troll Magnet's picture

if silver goes to $5000 in a few days, i'm selling all mine to buy the yankees.  then, i'll be paying my staff and players in fiat money. 

Sudden Debt's picture

If it goes to 5000$, I'll buy myself a island (somewhere in Greece )

Take on 6 extra wives and retire :)

malikai's picture

Dude 6 wives are expensive, even if they're former dictator's nurses. But I'm with you, $5000 silver and I'm buying an island somewhere. It's GTFO time then.

tonyw's picture

If silver goes to $5000 per oz. it means that everything tangible and necessary will also comparably increase in price, so what most people miss is that they will have protected that amount of wealth rather than made a profit. Remember 2,000 years ago one oz of gold would buy a good suit, today it will still buy a good suit not 150 good suits.

Disclaimer, very long PMs especially silver and believe it is undervalued.

unky's picture

one oz of gold will indeed by you 50 taylored suits in china. if you think one oz of gold will buy u a nice suit give me all your gold, i will give you twice the amount of suits, a good business for you ?

Treeplanter's picture

One oz.  Sure, to pay the month's rent on my studio apt. with a few hundred bucks left over to buy a bag of onions.

h3m1ngw4y's picture

if id get one ounce of silver for everyone who is in this bull market since 4$ there would be no silver left for all the others ;-)

unky's picture

i will make some nice copies by then ^^, so dont worry, it will still be just the metal value which is of course much higher.

impending doom's picture

This article highlights why the old guard of financial reporting is dying: some guy said this, some guy said that, anonymous officials reported that... Cite your souces, please. I've probably already read them, but how do I know it's not the nearest homeless schizophrenic?

nope-1004's picture

I agree.  10 years ago did anyone say silver would "correct" to $25?  Did anyone say it last year?

So why now?  Just plain stupidity.

Here's my forecast, does anyone care?  I believe that when the truth comes out that the banksters and ETF's have ZERO silver in possession, the thing will skyrocket above $2,200 / oz.

But that's just my opinion, like the idiot that thinks it will go to $22.

Who's right?  Guess we'll see.


johnQpublic's picture

 buy, hold, repeat

i could see a short term drop to mid twentys, akin to the drop in pm's in '08 when folks needed to raise cash

but it wont stay there, nosiree

it'll rise again,just like its been doing last couple years

and i'll buy the fucking dips.hold.repeat.

until such time that we establish a currency that one can have faith in again


DosZap's picture

Casey is a gentleman, and the folks with differing views are not going to be WIPED all over this site, if he respects them.

I have one trader in mind who has told me flat out to not buy, as it is going to these levels.I have been anyway,he's made great calls dead on before, so if I piss my pants, its on me.

I will just DCA.

The reason I an ignoring the sage advice of this guy, is because their are way too many Back Swans circling, and no one can CALL those.

Also, And the second reason for continuing to buy, is China, Asia, India, they are eating Silver UP.

Also Gold.There will come a point soon when world mines absolutely cannot keep up the amounts of either needed.

If the LONGS stand for physical delivery, Comex is screwed.

Ahmeexnal's picture

Do not underestimate the long reach of the banksters. They are getting a much needed oxygen tank from the spoils of Tunisia and Egypt. Soon the Libyan gold&silver will be theirs too.

And then Chavez's gold&silver will be next to be transfered to the JPMorgue vaults.

It's no coincidence all this is happening before the March deliveries.

Maybe....Wynter Benton is going home in a body bag! doo dah doo dah

Oh well, he did try. Just like "Another" (of foa/fofoa/fofofoa/fofofofoa/fo...foa fame) tried years ago. In the end, "Another" was caught holding a bagful of "worthless fiat paper" in a rat hole outside of Tikrit. And his precious...yep, taken away.

We all need to buy more silver to crack the piggybank.

living on the edge's picture

Oh well, he did try. Just like "Another" (of foa/fofoa/fofofoa/fofofofoa/fo...foa fame) tried years ago. In the end, "Another" was caught holding a bagful of "worthless fiat paper" in a rat hole outside of Tikrit. And his precious...yep, taken away.

Can you expound on your above comment concerning "Another"? Thanks

Lord Koos's picture

Any chart that starts with the Hunt brothers' high (which lasted about 2 seconds) is pretty bogus.  I like silver, but be real...

High Plains Drifter's picture

But, but, but , Bob Prechter said gold was going to 600..........

Troll Magnet's picture

shit...i wish gold would go to $600.  time to load up!

akak's picture

Bob Prechter has given up trying to make any sort of market calls, and has instead joined Karl Denninger and other deflationists on a voyage to find the edge of the flat earth, which rumor has it lies just beyond the Isles of Fiat Bliss and the Sea of Eternal Paper. 

I just hope their charts don't lead them onto the Golden Shoals, or even worse, into the Maelstrom of Silver.  "Beyond here there be dragons ..."

bankrupt JPM buy silver's picture

isnt taking 1980 prices, and assuming we are going back to them kinda like driving while looking in the rear view mirror?

Dont get me wrong, I love silver but the 1980 silver price, and why it went there, has nothing to do with where its going today and why its going there.

chumbawamba's picture

Fractals, my friend.  Everything is a fractal of something.

I am Chumbawamba.

Red Neck Repugnicant's picture

I wrote a paper at Williams entitled, Is Fractal Geometry a Hoax?

Not only did I receive an "F", the professor commented, "This paper is a devastating failure by every metric imaginable. Is this paper a hoax?"

I have it framed in my office.




akak's picture

What kind of grade is an "F"?

You mean one can do worse than an "E"?


In any case, it clearly takes somebody of your obvious intellectual caliber, RNR, to discover whole new sub-levels of failing grades.

tmosley's picture

The American grading scale goes A, B, C, D, F.

No idea why.

Also, lol at RNR for being proud of his ignorance of math.

akak's picture

The American grading scale goes A, B, C, D, F.

WTF?  Since when?  When I went to school, it was simply A, B, C, D, E, with no Fs or Gs or Hs in sight (and believe me, I know --- I received EVERY one of those letters in my first year of college, LOL).  What universe is this reference talking about?

Zero Govt's picture

Akak's right Rob Prechter has given up trying to predict the PM's, but his Elliott Wave clown side-kick Steven Hochberg hasn't despite throwing his charts in the bin literally every week because his predictions never work. I'm surprised Hochberg hasn't topped himself yet but no luck, he just ignores unapoligetically his fuking incompetence to subscribers and plows on with his latest wonderous pile of shit as if his last 50 pieces of shit never happened!!

Having said that i think Prechters deflationary meltdown is spot on. To my mind inflation is now peeking (hence the inflation hysteria in oil, food and PM's which accompanies any peek). We're going to suffer a 1929 and Japan 1989-2011 deflationary meltdown (credit card implosion) simply because that's what always follows historic levels of credit (debt).

In fact deflation, rather than inflation, is absolute common sense but it's hard to put that across to groups of euphoric near-hysteric inflationists!

Debt is the problem. Full stop. And when debt implodes it results in deflation, not inflation (of anything). It's not a popular view, in fact it's a positively extreme minority view, but the consensus usually calls it wrong  

tonyw's picture

I expected deflation by now but have been shocked surprised by the lying, cheating and stealing that the govts have done to kick the can down the road and prevent/postpone deflation. Now i think there is nothing they wouldn't do to continue this and keep themselves in office for one more round.

Zero Govt's picture

Kick the can, the easiest expedient decision, what a wonderous bunch (all) politicians are! ...they're undoubtedly making the deflationary meltdown even bigger when it (Credit Crunch II) comes

ATM's picture

Debt WAS the problem.

That problem has now been drowned in a moutain of fiat. The problem NOW is that debt is now worthless fiat which has spread that debt problem from the borrowers and lenders to everyone and the only course of action for central banks is to keep printing as fast as they can and to keep getting faster.

Lenders are being made whole by way of free cash which they  swap for real assets as fast as they can and before that free cash loses more purchasing power. That cycle of debasing the purchasing power of fiat starts slowly as the blind masses (homage to obama) cling to their religion of the almighty dollar.

Once the cracks in the fiat myth begin to show, the onrush of price inflation will commence in real time.

Now we may see some short term deflation but The Bernenck and all the other central banksters will never allow that to hold. They will print, print, print and flood the world with worthless crap and pray the sheeple are too stupid to see what's happening until it's too late - which is exactly what will happen. Then Kaboom. 

Math Man's picture

"You're buying PMs for the same reason everyone else is, short term ultra-leveraged investment for short term gain. "

I am still shorting silver for the same reason - it's going to blow up in everyone's face.

This is the hiccup before the puke.

Waved in some more puts today. 

$5 bucks to dig it out of the ground, but it's selling for 30+

Not to mention SLV has over 10,000 tons.  Hard to have a shortage with 10,000 tons still sitting in a vault.  If you really needed silver to settle a delivery, you could just buy SLV and convert it.

And JPMorgan had a trading profit every day last year while the price of silver went up 80+%.  They also shut their prop desk over the summer to comply with the Volker rule, making the odds of a massive short position, well, ZERO.

Silver will be below $20 soon enough - it was trading there a few months ago.


RockyRacoon's picture

...SLV has over 10,000 tons.

Your credibility just flew out the window -- the tiny sparrow that it was.

Math Man's picture

Prove to me it doesn't.

There is a list of all of the ALLOCATED Silver bars held by SLV on the SLV website.

tmosley's picture

Jeff Nielson has done a huge amount of legwork on this.

He has numerous links in his stories to other commentaries and original research pieces that he has done.

Math Man's picture

The is NOTHING in that link that proves SLV does not have the silver.

Only speculation and conjecture.

Mr Nielson's primary argument seems to be that JP Morgan is the custodian.

He neglets to mention that there is a list of all the ALLOCATED bars and that the holdings of SLV are independently audited.

Do you really think they just create an imaginary list of bars every day (there is a new list every day) and pay off their auditors?

RockyRacoon's picture

You're way late to the party on this subject.  Sorry.

That keg's been tapped so many times that the brew is flat.

akak's picture

Do you really think they just create an imaginary list of bars every day (there is a new list every day) and pay off their auditors? 

Why the Hell not?  How hard could it be?  Their buddies in crime over at the Fed create FAR more imaginary wealth every day to try and pay off their creditors.

Are you Math Man, or Rain Man?

malikai's picture

Don't insult Rain Man like that. He was excellent at mathmatics. I believe Rain Man would also be able to look at the bar list and immediately see the dupes and recognize the questionable nature of said list. I did, and I'm an idiot.

quasimodo's picture

Yes, too true, could not agree more-know if you will please continue to dispense with the magic ferry dust and all will be well. Just click your heels together.....

malikai's picture

JPM and Monsanto teamed up to invent a silver-shitting unicorn. The price of silver will now drop to $0.20. Also, when the unicorn leaves the Monsanto farm, the terminator gene makes it self destruct. So forget about getting one of them for yourself.

tmosley's picture

Try reading again.  Not just the first paragraph.


IEVI's picture

@Math Man


Dude, you've been a member for 5 weeks and the only articles you've commented on are articles about silver or gold. I couldn't waste my time looking through all of them..but the few I looked through all were all promoting JP Morgan's trading profits and trying to claim JP Morgan isn't short silver. Do you realize who you are dealing with on this blog..your not going to fool anyone here. In fact, I don't think you are even to engage anyone in a stupid argument with you. Did you think no one would track your posts??? Seriously..try the yahoo boards.

akak's picture

Government-paid trolls and disinformation agents are not going to bother messing with the knuckle-draggers on the Yahoo boards, who are, ironically, mostly all Yahoos, and who in any event are not inclined to discuss elite corruption, oligarchic control of our political, monetary, financial and media systems, nor most of all the Achille's heel of our floundering fiat monetary system, the unraveling gold and silver price suppression schemes.

purplefrog's picture

Many thanks!  BTW we are now at the point where there are very few alternatives to PM.