Thursday, November 6, 2014

Is 15 the magic number for Silver?

I hate to sound like a conspiracy theorist, but it's quite hard to argue with logic.

When you make a trade, you know you need ample liquidity so that you can have execution at the best price, especially when you are making big trades. "Fat finger" bullshit reasons are far too common these days, no one even reports it anymore. No one blows through the order books with a HUGE order during arguably the lowest period of market liquidity unless they are intentionally trying to move the market. Well, that's what happened today in the PM market. Someone took a massive dump in the precious metals market.

Now, I know that I am putting on a pretty interesting show for those people that are watching to see how I deal with this "max pain" Silver trade so far. Silver is one of those "barbaric relics" that generate no yield, has storage and opportunity costs, all on top of rusting in front of your very eyes. But in all honesty, I am actually not sweating much at all about these price drops. I have for quite a while said that I can reasonably foresee Silver to be heading down to $15 level:
1 Oct 2014 - "I see very big long term technical patterns that target the $14-15 area, so I wouldn't be too surprised if it heads down to that level though."
19 Sep 2014 - "$15 USD looks to be a good price target based on technicals."  
3 Sep 2014 - "Beyond that, it is reasonable that we could go down to as low as $15. I've seen quite a few patterns that have $15 as an objective."
11 June 2014 - "Silver is so beat down, I do find it very hard to see it considerably lower, I dare say $15 should hold its own."
Of course, as someone long this investment with previous price anchors, it would be nice to see it make a reversal at any price level and start heading up. However, I still do give technical analysis some credit, which is why I have just been strategically buying on weakness. Could it be the last dip? Maybe, maybe not. Doesn't really matter.

On 13 June 2014, I said that I would be enacting an accumulation plan in Silver, buying more as the price dropped. My lowest price target I had was $14.70 then.


If prices really do drop below $14.70, I might get worried a wee bit, but hey, if prices have declined so much from it's 2011 peak, can they really decline anymore? Of course, but I'm hoping not, haha! I have heard calls for $11 Silver, but I really don't see how it can crash to that extent.


This chart is actually just a month old, and Silver has since gone down to $15, representing a 70% drop from it's peak in 2011. Can things get worse? Probably, but not as bad as the 1980 move. The 1980 Silver crash saw Silver going from $40 to $12 in a crazy drop, while drifting to $5 over the next few years. The bull market in Silver to the 2011 wasn't anywhere as parabolic as the 1980 move, so I don't think we are going to have a 90% correction. If we keep drifting lower into next year, this would historically be the most drawn out bear market for Silver since the 1960s. Time seems to be ticking to force this bear to sleep.

On top of $14.70 being a strong technical support from my charts going way back on the monthly, I think that there are fundamental reasons to help this case as well. A mine has already decided to suspend sales, while another cuts CAPEX on exploration. A good argument is that silver is a by-product of other mining, but there is still a point where the primary producers just won't release supply at horrible prices. Mining costs have been falling and recent estimates puts it at $14, but miners are cutting costs all over the place and are in survival mode, hoping to ride out these low prices. With CAPEX being reduced, current cost-cutting relief is given to the market at the expense of future supply. Eventually the high-grade stuff will slowly get depleted and costs will slowly creep up again as they move into lower-grades.

I must concede that I have not been following my plan well. Sorry to disappoint, but even I am facing massive emotional and psychological barriers dumping a 30% allocation in Silver. With each dip, I release another barrage of shots. Though my ammo box is actually quite healthy, I think I am only going to give this "target" a few last shots. After that, I am going to play the waiting game and I WILL emerge victorious. I have to save the rest of my ammo for when the big boss comes around.

Right now, I am really putting myself on the backburner just watching my targets and waiting for the right opportunity to strike. I have already made all the moves that I am comfortable with, and now I am just waiting for something interesting to happen. While that unfolds, I will be working on trying to earn myself more ammo!

9 comments:

  1. Hi GMGH,

    I'm not a silver person but if it is any encouragement, the demand side has certainly picked up with the price slide.

    Read? CNBC: http://www.cnbc.com/id/102154858

    ReplyDelete
    Replies
    1. Hi S-Reit System Investor,

      Thanks for the encouragement! You should read this short news article that came out a few hours after the article that you linked, an interesting development on that story!

      US Mint temporarily Sold Out

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  2. I am picking up the physical silver bars for every 1 dollar drop. Cheers!!

    ReplyDelete
    Replies
    1. Hi Dave,

      You have strong conviction, I have to learn from you. I know you are one of the few people that foresee upsides to precious metals prices in the future too! Cheers!

      Delete
  3. Hi GMGH

    Sorry noob question.

    Does silver priced itself more volatile than gold under precious metals?

    ReplyDelete
    Replies
    1. Hi B,

      It's not a noob question, it's a good question!

      Silver is more volatile than gold, probably almost twice the volatility if I had to guess. Silver feels a bit like leveraged gold to me. Gold demand is more typical, while Silver demand is more cyclical because of its other use as an industrial metal as well. The Silver market is also smaller in value, so initial investments are low, which attracts more small-time speculators compared to the gold market.

      Historically, gold bears range between 30-50%, average about 40% drawdown from its peak.
      Silver bears are more volatile, between 40-70%, average about 55% drawdown. We are now at about 40%DD for gold and 70%DD for silver. Interesting times times ahead!

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    2. Hi GMGH

      Thanks for your revert.

      I will be looking to invest some in gold probably sometime soon.

      Delete
  4. hey, how do you invest in silver? Through Bullion star? Any link for howtos?
    I know phillip capital has Futures available

    ReplyDelete
    Replies
    1. Hi Anon,

      I personally invest Silver through BullionStar. As a customer and also an affiliate of them, I am biased, but I think that they are fantastic! You can go and do your own comparisons too.

      I did write a post a while back on my first purchase which has some screenshots and commentary on the process, but it was not a "how to" tutorial. Actually I think their website is very easy to navigate and use, so I don't think you will have a problem if you decide to go with them! My First Physical Gold Purchase

      I have written a full review of BullionStar too. BullionStar Review

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