Friday, November 30, 2007

Canadian Silver Bug- Predictions for 2008 pt2




Ok this installation is the big stuff, lets look at precious metals.



Gold,



based on U.S. dollar weakness, flight from risk and the instability of paper assets world wide I believe 2008 will see $1200 dollar gold. This of course is based on a continued, somewhat orderly fall in the U.S. dollar. That said there is still the chance of the Chinese nuclear option of dropping all U.S. debt or some other calamity still leaves the possibility of astronomical gains. 1980 saw what panic/mania/ can do to a market in a very short time and while destined to happen the risk of panicked spike is much higher than the chance of peace, goodwill and sound fiscal management fixing the worlds woes and dropping gold back down to $400.


Silver

Based on the same factors as gold, silver will go to $25 in 2008.

There are slight differences in the markets however, while I believe silver is money many still look at it as only a commodity so naturally in a crisis more money will move to gold than silver. This is where it gets complicated, first there is much less silver available in the world so it would take much less new investment to bid the price up, that’s good for us. The Nymex is evil and quite probably allowing manipulation, that’s bad for us.

The Nymex holds about 133M oz of silver and between it and the silver EFTs accounts for most of the available silver. The Nymex also has regulations limiting how much you can have delivered per month making it difficult for any one person or institution to accumulate large quantities or bleed off their stockpiles quickly.

Eventually however enough people will quit trading paper and demand delivery, a quick move towards delivery that takes down stock piles 20-30% would at today’s prices only cost 600 million, a drop in the bucket compared to the values of hedge funds, pension funds, and sovereign wealth funds. This kind of move will panic industrial users to secure a year or twos supply rather than accept the security of just in time delivery, the ensuing rush will push silver much higher. It can’t all be bought by one entity but it will get bought, delivery will be demanded and eventually there will be default as far more paper trades than silver exists.

I’m not saying this will happen next year but this is destined to happen. The default is the magic moment physical silver holder must wait for; the silver/gold ratio will go from today’s 55 to 17, 10, maybe 3.1212232332? I don’t actually know, I do know silver is way below it historical ratio, it’s natural ratio, and it’s above the above ground ratio.

While my status quo prediction for 2008 is $25, a silver default could price silver over $200.



Platinum and Palladium.

I don’t usually mention these because they are not now and have never been money. That said, there is a lot of risk with these metals, short supply, strikes, hostile and potentially manipulated producers, mine accidents all of which could pump the prices. I won't set a price for these but I do expect them to go up. Bang for the buck however, Silver has the most potential so I can't see any reason to bother with Platinum Group metlas.

Part 3. will be along in a few days, it will be some general predictions, and a few what if's.

We are having a nice correction likely from Goldman Sachs self serving claim Gold has peaked and the markets are getting over the credit crunch, Bullshit!

My belief is this is a ploy to strenghten the dollar or to cover short possitions by driving the price down. Don't believe them and take this opportuntity to stock up.

4 comments:

joe said...

Where do you get $25 silver for your 2008 prediction? Silver had a pretty dramatic pullback since testing $20 and I would imagine some consolidation at this level for a couple of weeks/months before retesting the highs and possibly breaking out.

You also mention the possibility of industrial users stockpiling silver at any hint of shortage and this would be the trigger that would squeeze the shorts to oblivion. Who would these industrial companies be - would you know specific company names? Also, wouldn't it be entirely plausible to find out from the personnel (buyers) in these companies to figure out when the panic button has been hit and they are about to stockpile silver? I work in manufacturing and would certainly have the ability to 'sniff' around and speak to the right people to find out if large purchases was about to be made. Unfortunately, we don't deal in silver, but in copper. If your readership had enough network connections, perhaps we can find out for us little investors to have some timely info and accumulate more at the right time.

Finally, one more thought. You mention the historical ratio of gold/silver and in theory this ratio should revert to the historical mean. I've read many predictions of others and there was an interesting ratio that sparked some thought in my head - that of silver compared to the DOW. This author mentioned that he would say the bull cycle is over when 10 ounces of silver matches the price of DOW. With the DOW currently at 12400, silver would have to be $1240 for this person's signal that the party is over (assuming the DOW stays flat for the foreseeable future). I would be the biggest cheerleader of this if it was so - but it seems a little extreme. I might try and get some historical data and see the historical ratio of these 2. But what are your thoughts on this?

Lord of Wealth said...

my silver estimate was not based on high math, I simply looked at the 2007 high and made a very rough estimate of what a new up leg would be.

Previous high was about 18 and I added 40% for what I expected would be a combination of increased investment demand and 25%monetary inflation as the world loonies goose the money supply further.

As for the 25 I might be wrong, that's why it's a prediction not a promise that said 21 came far earlier in the year than expected, the correction was about 2 dollars less than many expected, just like gold's was $100 less than many claimed. This shows buyers were willing to step in earlier into the correction than they have in other major corrections, this bodes well for the next up move. I'm not ready to revise 25 yet.

Industrial users are vast and many,every company manufacturing chips or electronics use silver, big Chemical companies use silver for catylst in things like formaldahyde, I'm sure a list at the silver users association will give you a good idea who the users are.

I read the 10:1 dow thing, and while I'm pretty damn optomistic it seems a little far fetched even for my tastes and also making the assumption the Dow will stay stable is a big leap.

However if the dow falls from a massive recession to 7000 range it suddenly looks more plausable. If things get bad enough and silver makes a move on the historical gold silver ratio will the Dow go down in recession or up in hyper inflation? I can't say.

This dow prediction also said 2 ounces of gold so that guy was actually still dealing with the silver gold ratio and his goal is 5:1 where I'd be happy to see the historical/natural ratio arise at 16-10:1. Either way I'm making protecting my wealth from today's problems.

The over $1000 crowd for silver is pretty small, but wild claims will bring in some desperate investors and bid our silver higher, so I just wince and hope I'm wrong and they are right. Pure inflation will never get us these prices, it has to be a delivery default and real shortages for silver to ever reach these prices. I fear that the users or governements will pressure the mints to stop producing small investment bars to thwart our new demand from tipping the market and honestly it would work because it's not rich guys buying a whole contract of 5000 oz that are adding up the investment demand it's thousands like us buying 10, 20, 100oz at time and they may try to cut us off.

joe said...

I myself thought the $1000 mark was a wee bit high - but couldn't banish the sound of cha-ching in my head. :)

Mr. Butler believes that a shortage is inevitable and that might possibly take silver to valuations beyond most conservative estimates. From our standpoint, we obviously hope that happens sooner than later. But if I remember correctly, he gave some numbers to suggest that there are maybe 14 years mineable silver left on Earth assuming we consume the same amount each year (I may be wrong on this though). I would think that 1) with time, it would be harder and more expensive an effort to mine the remaining amt left and 2) any hint of an eventual depletion of silver would exponentially increase the value of it, i.e. a bubble. The question is when is the tipping point (5 years from now, more, less)? That is a great question I like to tickle myself with. Or perhaps this has the opposite effect - such that any jump in silver prices would induce industrial users to find alternatives. Just like we're finally getting around to alternative energy in the face of 'peak oil'.

The other thing you mention about the mints stopping production of smaller bars is interesting. I guess I never considered that. I guess the gov't can and will encroach into the affairs of its citizens and even possibly ban owning silver. But let's say that silver is not available in small bars anymore - wouldn't you think that this would drive up alternative investment vehicles like the SLV which acquires 1000oz bars of silver from the mkt? My guess is smaller investors will flock to this (and also junior mining companies). This would help silver regardless assuming the SLV does in fact take silver off the mkt. This is a win/win. Plus any hint of such tactics by the mints coming to public light would probably back fire against these 'evil doers' because it might cause a real panic and bring previously uninterested parties on board the silver train. I say let them try!

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