Simon Black Answers The Question Du Jour: "Should I Sell My Silver?"

Tyler Durden's picture

From Sovereign Man, Simon Black

Should I Sell My Silver?

Silver's rise (in US$ terms, at least) over the past several weeks has been nothing short of phenomenal.

The chart has effectively "gone parabolic," and people I've never met have started to e-mail me (in my capacity as a registered investment advisor) for advice on silver. 

It doesn't matter whether it's silver, tech stocks, emerging markets currencies, or pork belly futures... any time these two events coincide (a parabolic chart pattern, and strangers asking me for advice), it sets off ALARM BELLS in my head. 

I'm going to go out on a limb and say that right now, the fundamentals for silver DON'T matter.  Many of the latest crop of silver "investors" have no clue about the fundamentals. 

To try and divine what comes next, it's more useful to use a general framework for understanding financial markets than to look at the supply and demand characteristics of silver.  Because, right now, the market is being driven chiefly by investor psychology. 

It's a cliché to say it, but ultimately, all financial markets are driven by fear and greed.  Actually, I'd argue that they're driven almost exclusively by fear. Let me explain...

In the initial stages of a bull market, it's the fear of the unknown that keep the masses out of an asset class.

They think to themselves, "Yes. I can see it's cheap.  I can see the fundamentals stack up.  But what if, blah blah blah.  Why is no one buying it?  There must be something wrong with it.  Best to steer clear." 

For those who overcome this initial fear, or skepticism, and do get into the market, once it starts going up and they have a profit, once again their primary, over-riding emotion is fear... fear of losing their profits.  Or, even worse.  The fear of a profit turning into a loss. 

So, what do most of them do?  They sell out for a small profit.  That's why it is said that bull markets are constantly climbing a "wall of worry."  And that's why ALL markets have corrections.  Corrections happen when enough people are FEARFUL of losing the gains they've made so far, and start to sell out in large enough numbers to temporarily reverse the trend. 

Near the top of a bull market, when most have finally overcome their skepticism, and the savvier participants have taken advantage of one of the numerous corrections to buy into the market, fear again comes to the fore.  For those not in the market yet, even at this late stage, what finally pushes them in is the FEAR OF MISSING OUT. 

All their friends and colleagues are cleaning up in the market.  How stupid they would look if they don't get a slice of the "easy money" too.  And so, they pile in like lambs to the slaughter. 

I don't think we're at that point -- yet -- with silver. But we are at the stage where many people who are already in the market are FEARFUL of losing their profits. 

On this basis, as a student of market psychology, I suspect a correction is overdue.  Again, I don't claim to have any specific fundamental insight into the silver market.  I am speaking from a general standpoint. 

So what should you do? 

If you own physical silver, the logistics of taking profits on your stash are probably quite complicated.

Shipping, and converting a large amount of physical silver to cash temporarily, may not be straightforward. 

But there are other ways to soothe your "fear of losing your profits."  You can buy temporary insurance against a correction.  Or, if don't actually own any silver at the present time, you can speculate on a correction. 

Long-term ETF positions are risky, but you may consider a short-term position in the ProShares UltraShort Silver ETF (ZSL on the New York Stock Exchange).  This instrument is designed to move TWICE as much as silver bullion, but in the OPPOSITE direction. 

For example, if silver falls 5% in a day, this security should GAIN 10%.  Of course, it works both ways.  If silver keeps on rising, then the price of ZSL will lose twice the amount silver rises by. 

During this bull market, silver has already seen one "correction," during the financial crisis, of more than 60%.  That was an anomaly.  But, a typical 10% or 20% correction would not be surprising to see at some stage -- quite possibly soon. 

Any time any market has gone parabolic, it has played out that way.   (Indeed, a correction may already be underway as I write.  I've just checked and I see silver is off by more than 3% in Asian trade). 

Just so you know, my own money is where my mouth is.  I've personally bought some call options on ZSL which will make me a tidy gain if silver suffers even a modest pull-back-- I put the trade on early in the day on Monday with silver above $48. 

I'll have much more to say on silver, and other precious metals, in future missives, as we see how events unfold.

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baby_BLYTHE's picture

Gold is on mainstream news almost everyday now (not just financial cable chanels).

MSN now saying Gold could pass $5,000

Of course the real story here is all about the dollar. No mention of it testing historic all-time lows

MSJChE's picture

Just more evidence we're about to enter the second phase of the gold/silver bull market.

Bad Lieutenant's picture


I bought a lot of silver about two year ago and is in the form of hands-on physical, allocated (at DDSC), and unallocated.

There are many very powerful fundamental for the long term pictures, and we've heard most of them, including the shorter term bearish cases (such as this piece).  The largest long-term bull fundamental that I don't see often is a hybrid of Jim Rickards and Ben Davies except applied to silver.  Specifically, when chaos finally starts to erupt with a run on the USD (months or years from now, either rapid or slow), the Fed will have no choice but to play their trump card: revaluation of the USD to gold.  The price they'd pick, as Rickards and Davies have explored, will likely be $5-30k for the numbers to work out and confidence to be restored.  Thing is, god knows how many legal restrictions they'll put on the private selling of gold (all in the name of financial system stability and integrity of course). I don't think they'll ever be able to consider confiscation, but who needs to when you can just put say a 80% tax on gold-based capital gains.  

But enter silver in this revaluation scenario...  Silver will be pulled up with the gold revaluation to keep its price ratio roughly in tact but will likely be subject to less restrictions and/or taxes.  So with a long term silver play, you can capture the revaluation scenario but not worry about Uncle Sam taxing it all back.  

The other long term argument that made me take the plunge is that with the US as a "gold superpower" as Rickards says, there is a list of other countries that would do well revaluing to silver (or a basket with silver in it) since their gold reserves are limited.


Herd Redirection Committee's picture

Any one else having trouble with the site not loading?

You know its more likely that the man in the street goes short silver, rather than long silver, and so... There is lots of room left to run.  Of course to see it consolidate for 2 or 3 months would be no surprise, but would I sell all my silver here, let alone take a short position?  Oh hells no. 

Check out the latest from the Capital Research Institute "Cracks Starting to Show?":

Even though the Capital Research Institute was only officially founded 3 months ago, we have already started seeing various predictions come true.  Commodities inflating rapidly?  Check.  Lingering sovereign debt crises?  Check.  Gold and silver at, or approaching, record prices?  Check.  Another conclusion from our analyses was that the US dollar will inevitably lose world reserve currency status.

Others are not as convinced.  Michael Pettis, a Finance Professor, and writer for Financial Times ( recently argued that although the US should be prepared for a lesser role for the US dollar in the world of finance, fears of its demise are overblown.  Suffice to say, here at the CRI we strongly disagree with that assessment.

chumbawamba's picture

Even though the Capital Research Institute was only officially founded 3 months ago, we have already started seeing various predictions come true.  Commodities inflating rapidly?  Check.  Lingering sovereign debt crises?  Check.  Gold and silver at, or approaching, record prices?  Check.  Another conclusion from our analyses was that the US dollar will inevitably lose world reserve currency status.

We also made such stunning predictions as: the sun will come up in the morning and go down in the evening. Check.  The Earth will continue to spin on its axis. Check.  The tide will come in, but then go back out. Check.  Stupid people will predict stuff that is going to happen anyway. Check.

I am Chumbawamba.

narapoiddyslexia's picture

On the other hand, some people say, "tide goes in, tide goes out. Never a miscommunication. You can't explain that. You can't explain why the tide goes in, the tide goes out."

Thus, since you can't explain it, some people better not make tidal predictions.

I bought half paper ETF SLV, and half physical Silver Eagles, back in 2010. I sold my paper yesterday morning, and my net after tax cost on the silver play in Eagles is thus just about zero.

So sell some and keep some if you're nervous. Any reputable coin or pawn shop will give you a decent price. At least, those around my town will. 

But, I bought the Eagles to keep in case things go to hell. The price of silver today, or tomorrow, is therefore irrelevant with respect to them. The paper ETF was a Western-style investment, though, and I took my profits off the table.

Figure out your risk tolerance for what you're trying to do, then go with it and damn the torpedoes.

narapoiddyslexia's picture

And by people not being able to make predictions, I meant me.

Herd Redirection Committee's picture

Love you Chumba.

I am sure you can appreciate that the use of predictions is purely to strengthen my argument's appeal to credibility.  For us ZHers this stuff is blatantly obvious, but for others who are still perplexed by 'financial matters' it is sometimes best to break them in slowly.

falak pema's picture

"For us ZHers this stuff is blatantly obvious"

I may be wrong but this implies that there is therefore a ZH creed about things that go beyond logic and fact...interesting. Afraid I'm not a member of any club that prejudges events according to some special lens...but...I am tolerant. I do love both sides of the argument and even a third or fourth option.

Unless the ZH creed is the only one I adhere to : Never junk facts, never junk logic, always take into account historic precedence...Then we are on the same page. 

msamour's picture

I think he meant the general state of increased understanding that people on ZH have about financially related matters. 4 years ago I was with the regular sheeple, I could feel something was amiss but I didn't know why. Now when I see an article on MSM trying to explain something with lies, I just giggle inside, because I know better.

goldfish1's picture

Any one else having trouble with the site not loading?

Yes for at least 40 minutes.

TheObsoleteMan's picture

While I agree with some of your post, I disagree with two: 1. The USA will NEVER return to a gold standard in ANY form, when the US$ does flush, it will be replaced with a global currency. All of the elites and media are openly talking about it now. This was one of the reasons why this crisis was engineered in the first place. Globalist run Washington, they are not nationalist, and could care less about the country or it's citizens. 2. So you believe the USA is a gold superpower? Maybe, maybe not. There has not been an audit of Fort Knox since the early 1950s,  and all request to do so are denied. So who has seen all of this gold? Could they have leased it all out? Sold it? Given it to Israel or the bankers? Not saying they don't have it, just saying no one has verified it. Personally, I don't believe they have all the gold they claim to have. I believe it is but a small fraction of that. Just my thoughts for what its worth.

chumbawamba's picture

A lot of it has been traded away for cheap oil.

I am Chumbawamba.

trav7777's picture

quite possibly, but maybe not.

The Ahabs have gotten lots of fun toys and shit like F15s for the princes to play around in.  The dollar still buys them Ferraris and Bugattis and yachts and whatnot.

centerline's picture

They have the oil.  Makes one wonder who the greater fool(s) have been... us or the Arabs?  Hmmmm....

critical_mass_soon's picture

When the dollar collapses, and it will, the arabs will probably return gradually back to a nomadic state, and all there fancy buildings, and toys will fall into disrepair, They all hold far to much US treasury debt and they along many others will suffer the consequences of currency dilution, facts are facts.

I think they better start making friends with the chinese and softening ties with the US before its too late.

DosZap's picture


Do not fool yourself for one  minute.

They will get all PM's, and tax the hades out of them.(If you sell/trade them on the market).

Silver?, has a strike against it that gold does not.

Industrial use = Strategic Metal.

Just like Pal, and Plat.

The devil will get his due, no matter what.

Smart money will be moving out of silver into gold, and soon.

Right now we have a mania on Ag,but have you ever seen a meltdown where silver was the metal of choice?.

When people recognize the end is about up for the USD, that will be phase 3, and gold will be the go to metal.


deacon_blues's picture

20 silver eagles for $1,000.  Includes shipping.

i think the premium will go higher in the future.

Banjo's picture

MSJChE I would suggest that we are entering Phase 3. When the general public "starts" to get involved.

Overwhelmingly people still don't own metals, their discussion in public to me indicates end of  Phase 2 and start of Phase 3 of a bull market.

Temporalist's picture

It is not "testing historic all-time lows" but it is still near enough to the 2008 lows and under 74 that people should realize it WILL hit all time lows.  Of course that is paper valued against paper so take it with a grain of salt. 

The media has been left with no choice but to discuss PMs but 99% of their time is spent on something else and only when PMs have made highs for 8 days in a row will they use ink to satiate the demand for knowledge about this investment class which they still do not call real money but instead a commodity.

And incidentally MSN is not saying anything that is one contributor and I'd guess he's been tongue lashed every day since that article came out last week...except for a break during the holiday.

drink or die's picture

According to Cramer, the market is going up another 10%.  Probably should sell that gold and buy S&P.

ATM's picture

Going up relative to what?

The market may indeed go "up" 10% but if the dollar that gain is priced in is down 12% you're still SOL.

It is this simple relativity that perplexes the masses. Everything is spoken about with an understanding that the dollar has a stable value. There is a bias that few have realized so far.

When they do is when the system crashes because the masses will then realize it isn't a price problem but a money problem. That always happens at the end of a currency.

ViewfromUndertheBridge's picture

"There is a bias that few have realised so far"

Keynes gets a bum rap these days...Bernanke is following Lenin's advice:

"Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose"

Keynes "Economic Consequences of the Peace" (published before the German hyper-inflation).

There are some amazing quotes from Marx and Lenin that apply to Bernanke's actions...and Keynes was onto them...he would have crucified Bernanke.

DosZap's picture


No surprises here.

9 of the 10 planks of the Commie Manifesto are in place in America as I type.

Robslob's picture

That is paper gold...

I know some really wealthy people and only 1 owns a significant stash...the rest just look at me like...why the hell would you actually buy and hold gold?

zenblkboi's picture

Isnt buying the ZSL the same thing as shorting silver.   Man, I am really bad when it comes to shorting things I am long on.  I am losing so much money today!!   

Anybody got advice on how to perfect this skill?

MSJChE's picture

Don't worry about "losing so much money today" due to the paper price.  If you hold physical you're still good.  eBay silver eagles are still way above $50/each.

zenblkboi's picture

i have paper and physical.   And what I wanted to know is how to improve my skill at short selling,   what kind of tools are out there?

kgbgirl11's picture

below is my answer on another website earlier today. I would NOT use a short-silver ETF, and most certainly not a leveraged-short, as daily compounding on those means it's not a hedge, and it can get you whip-sawed royally. As a physical holder myself, and one that sees PMs as a store of value and a necessary bridge to the new global currency reality, I have no desire to sell the physical that I got when silver was roughly half price relative to today. However, the swift ascent worries me a great deal, and the parabolic move of the past couple of month is of great concern. Being well versed in derivatives and probabilities, my solution was to buy out-of-the-money long-ish dated puts on SLV last Friday, with the idea of protecting unrealized gains on my physical. It cost only a small fraction of my unrealized gains, and if done in the 1:1 ounce ratio to your physical, allows you to participate in the majority of the gains, should silver continue to advance (in which case I will be adding more higher strike puts). And yes, you also should get an additional benefit should anything go wrong with SLV beyond the physical market, like many bulletin boards suggest. Something that's perhaps worthwhile for others to consider...

narapoiddyslexia's picture

I bought half paper and half physical last summer. Yesterday, the paper got to the point where its sale paid for the physical so I sold all the paper SLV. Now I've got free physical. It doesn't have to be paper, though. You can always sell a partial stake in anything that's gone up a lot to take profits off the table. The net result is to lower your price for what you have left. Now, I'll never lose anything on the physical as it net cost is zero. I think after the dust settles in the next week or two and we see what type of further damage Ben and his jolly compadres are going to wreak, we'll know what to do with more investments. Right now, today, things are somewhat murky.

Math Man's picture

Buying puts is probably the most efficient way to do it, although the implied vol has moved up lately.  Your downside is limited to the option premium...  buy a few months out (I currently like July), and then you can reload later if the crash is delayed. 



tmosley's picture

You mean when you lose 100% of the money you put into them.

Few more months of this and you'll be all out of dollars to stuff down the toilet.  So sad :(

But then, $34 was "definitely" the top, so all this must just be a bad dream, right?  Wake up!  You've wet the bed again!

akak's picture

.... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

.... must .... eat .... silver ..... owners' ..... brains .........

Math Man's picture

Tmo, please stop commenting on shit you don't know anything about.  Like trading.  You're 95% in phyiscal silver and you don't know shit about diversification, just like the ass clowns who went all-in to the real estate market and dot.coms.  You are about to have your ass handed to you.  The very least you could do is buy some puts to hedge out some of your concentration risk.  When silver breaks, you could even use the proceeds from your puts to buy more ounces of physical.

As for the rest of you...  Allocating a small precentage of your portfolio (1-2%) in put options on an obvious bubble like silver is a great fucking trade.  Sure, if they expire worthless, they are a small drag on performance.  But the risk/reward is so assymetrically skewed that when it works out, it will more than make up for any previous losses incurred... This is the type of trade I will make over and over again.   The upside is too fucking huge to pass up.  I don't really give a shit that I gave up a little performance last quarter...  or this quarter, or the next.  When it breaks, I will make a fucking mint.   Maybe I'll even buy another Ferrari.

akak's picture

Allow me to summarize MethMan's post for those who do not speak trollese:


..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

..... only $5 to dig it from the ground .....

.... must .... eat .... silver ..... owners' ..... brains .........

Hephasteus's picture

Ok so let me understand your system.

Buy puts to protect yourself.

Get ferrari.

Do you buy the puts at the ferrari dealership and do you have to pick your color when you buy the puts or can you wait?

See I would have never thought of this because I don't want a ferrari and I had no idea they sold puts.

Blano's picture

All I can really say is practice, practice, practice.

You could learn options and buy put options, which is a way to short something or hedge a long position.

Disclaimer: I'm not an expert.  I own physical silver, plus picked up a couple SLV May 45 calls today.  I also bought a couple SLV weekly 43 puts to get me through The Bernank's press conference tomorrow just in case.  Unfortunately I have to be going to a job interview at that time and won't be able to watch.  If Bernanke causes a short term dive, I'm covered.

dark pools of soros's picture

very true - most sites are still showing $50 for a single oz...   100 oz is around $4,800 and you have to wait 3 weeks

So this is a weird situation where the long wait is dampening demand... let's see what happens when the wait comes back to 2-3 days

Temporalist's picture

Your problem is one of semantics.  If you call your ZSL hedging your bets then you can be long physical and short if you are right your silver does great and if you're wrong your paper does great.

Either way I just told someone yesterday to do that very thing it's like someone is listening to me. 

Time for the silver foil hat...although I hear gold is better protection from their brain scanning rays.

topcallingtroll's picture

What was funny was Erin on cnbc saying that everytime they take notice of gold's amazing moves it pulls back.

She said that when they mentioned gold target 5000.

Silver Alert's picture

It reads like this article was penned over the weekend and before yesterday's correction.


And it wasn't written by Simon Black as Tyler headlined. From the article:

"[Editor's note: Tim Staermose is filling in for Simon today.]"

defencev's picture

Well, in my view the very fact that it was not written by Simon Black should be considered as a plus. As I have already mentioned several times, neither Simon Black background nor his track record indicates that his so-called investment tips make any sense.

There are very few people in public domain whom I would qualify as visionary in investment

(one of them is Mark Faber) and even this people are more than in 50 percent times are right (and frequently wrong). Reading others is just a waste of time and taking so-called investment tips

(let alone paying for that) is flat stupid. Recommendations of using leveraged ETF's already should ring the bell: the author is most probably a charlatan..

campag's picture

don't use the f - word when trying to see which way the market is going. fundamentals don't matter in all markets -haven't for at least 3 years now

Magnix's picture

Save silver/gold for barter after America crashes for good.

tallen's picture

Obviously some serious shorting/manipulation going on in the COMEX, Options expiration today for /si futures (/sik1) and it's fallen steeply for the last two days. Expect it to rally from tomorrow onwards. Good time to BTFD around now.

PSLV still trading well above NAV and SLV..(Who'd want paper silver..). There's some good other companies out there for bullion dealing with far less costs than PSLV.

Bullionvault and goldmoney still have gold at small premiums (1-2%) to spot. I've loaded up all I can, bullionvault's got a 1 ounce of silver for every new account recently too. Far cheaper than getting ripped off with APMEX with $5 above spot, but then again you do get physical. Every time on options expiration they do this! Just look as previous options expiration days. JPM and HSBC flooding the paper market to stop their derivatives bubble exploding.