It is my view at SilverPriceAdvisor.com that the outlook for silver prices in 2013 is simply higher. I say “simply higher” because the trend for silver prices in 2013 will be higher as the year moves on. More importantly, I say “simply” because the forces that will drive silver prices up are simple to understand, if you suspend your suspicions and emotions.
After more than two years of research and reading 1,500 articles and reference materials from over a hundred different sources, I’ve found what I always thought might be the underlying reason for rising silver prices. And after the time that has passed and the increase in silver prices, there is still potential for larger profits.
Silver prices in 2013 are one of the best investment opportunities that I have come across in my 20 years of investing.
Before I explain the reasoning behind my 2013 silver price predictions, I’d like you to read an article about the effect of investment-demand on the longer-term silver market by Steve St. Angelo, available at: silverseek.com/article/forces-will-push-silver-over-100-7691.
This is one of the most well-researched articles on the silver market. It focuses on the reason silver prices have risen steadily since 2005, and will continue to rise. The reason is investment demand — not industrial demand like silver investors and some experts believe. Industrial demand growth is great, and it gives silver a feature that gold could never again possess. Forty-six percent of new annual silver mining and recycled production is consumed every year by industrial demand. This means it is not available for hoarding and investment in the future. However, industrial demand that is consumed and not added to inventories is not the reason silver prices have risen dramatically since 2005. The reason is that new investors and net new investment in silver are affecting the price of the marginal ounce of silver.
I have always known that new access from investors in exchange-traded funds (ETFs), net new investment and the rising price of gold were all leading to higher silver prices. However, I thought rising demand from investment, industrial demand and a tight supply-demand situation drove prices higher. These factors are all part of the story, but the real driver of silver prices over the long-term is more than consumption, it is the trend in silver investment.
My theory about the silver market has always been that one of the main influences on price was investment demand. Now I know that the key to understanding the fundamentals in the silver market and predicting silver prices over the long-term is focusing on investment demand trends for silver. That means quarterly and annually, not just last week or last month. It also means you have to immunize yourself from the gyrations in the daily spot price.
Silver averaged US$30 per oz. in price in 2012, lower than the record average price of US$35.11 in 2011. It is my opinion that silver will average US$37 during 2013, as silver trades in a price range of US$31 to US$42. That average would be 13.5% higher than silver prices, as of Nov. 30, 2012, of US$33.50. If it reaches US$42, as I predict it will sometime in 2013, you could be up 25% from its current price, and even more so if you buy on pullbacks from the current price. The main difference in 2013 is that the corrections would be much shallower, and I don’t think the price will drop below US$30, or 10%, from today’s prices.
Like always, silver will be volatile and offer many chances to trade around a core position, take profits and buy back again. But silver miners are more difficult to predict: if silver performs well, they eventually will too. The sentiment swings with miners are even more irrational than they are with the physical silver market.
The reasons that should lead to higher silver prices are simple to understand. Better yet, there are a couple of simple trades you can put on to amass a comfortable fortune. However, to do this, you must suspend some of the traits that have served you well as an investor:
1. The intellect and instinct from your investing experience tells you that that this big opportunity is too good to be true. The people who advocate it as strongly as I do must be irrational. Also, if this is so obvious, others would have already recognized it, which would factor into current market prices.
2. That every life-changing investment during your lifetime is something so complicated that you have no chance of taking advantage of it.
3. Because of the extreme volatility in silver prices, you will need faith and conviction to attempt making huge profits.
I will be perfectly honest with you: I felt the same way when I became a big silver advocate a few years ago. I bought silver with 10% of my assets in 2009, and it did so well, I researched it more. By the end of 2010, my research and the events that matched what I had predicted drove me to consider betting big. Events happened more quickly than I foresaw, and sensing an opportunity, I went “all in” silver and silver mining stocks. I invested 100% of my investable assets in silver and silver mining stocks. I also started a newsletter to tell others about the opportunities in silver.
By the end of April 2011, I had made one of the best trades of my life and substantially increased my net worth. The newsletter clients who followed my suggestions also scored huge profits. Because silver had gone parabolic, I knew it would be a rough ride to the downside for awhile. It was difficult changing what I had advocated — buying — and advise selling, as well as avoiding the market for over one year.
However, the financial markets have taught me that if you don’t execute your call properly when the critical time arises, it can be all for naught.
I didn’t know if it would be tough for months or even years for a similar positive set-up to occur. I suggested exiting the silver market, and shut down my newsletter update service.
By mid-2012, I was shocked that silver was cheap again at only US$27, below where I invested so heavily before. So I went back and did my research and was astounded by the results. It turns out that, while the temporary events that led to the big, short squeeze I had profited from in 2011 had largely played out, the fundamentals in the silver market are even more positive now than they were then. In fact, silver offers incredible upside profit potential over the next 18 to 24 months.
The following explains why the silver market is stronger:
1. High silver prices are driven by investment demand, not industrial demand. If you go back, you will notice that while the bull market started for gold in 2000, the silver market took off in 2005. It is no coincidence that the larger silver ETFs were created between 2006 and 2007. Since 2005, silver prices have averaged a 27% compound return, compared to stocks and real estate that are below their all-time highs. I think silver prices will go higher until the end of 2014 to score one of the largest 10-year increases in investment history. Looking back, 2005 to 2014 will be the decade of silver, like gold had been five years earlier.
2. It is clearer every day that silver inventories available for delivery in the commercial inventories held by the metal exchanges are dwindling. The ounces available in commercial-grade, deliverable form are shrinking, as more large investors distrust the paper silver futures market and crave exposure to physical silver. But this time, they are requesting delivery to custodians other than J.P. Morgan and HSBC — or even themselves — to ensure proper ownership. This is one reason I’m advocating that silver investors sell any positions in SLV and SIVR, and purchase new positions in PSLV or CEF.
3. You have heard of a negative feedback loop causing declining asset prices, where forced sales lead to lower prices, which lead to additional forced sales. But the silver market is the opposite: it is a positive feedback loop causing rising prices, leading to new silver investors who purchase ETFs and physical silver. Every new ounce purchased in physical form or in a truly secure physical ETF form (PSLV, CEF) removes another ounce from the available market, which leads to rising prices. These ounces will remain off the market until owners sell at higher prices. Higher prices attract more investors and the process feeds on itself. This is possible because the silver market is small, relative to the gold market.
4. The ounces owned in all silver ETFs just hit a new record, even with silver prices down 31% from 2011 highs. Silver investors have survived a parabolic rise, a price plunge and wide trading ranges. Silver owners are solid, committed, long-term investors!
5. A more important structural imbalance in the silver market will force prices higher than you would think possible — this is a multi-hundred million ounce short position in the silver futures market. If prices rise, investors will face unlimited losses, so they’ll bid prices higher so that sellers meet their demand and end their losses. You will have probably another blow-off, parabolic move that will make the run from US$30 to US$48 in 2011 look tame in comparison. In fact, I have a price target of US$60 in the next two years that would equal a massive 80% return on your investment at today’s US$33.50 price level.
I have between 50% to 75% of my total investable assets exposed to physical silver and silver mining stocks at all times. Only your own comfort level can determine the percentage of your assets that can endure the volatility of investing in silver.
— Based in Dallas, Texas, Mark Thomas publishes his silver investing advice at silverpriceadvisor.com, which offers a free 30-day trial of the service’s email updates.
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