Silver’s had a cracking run – what happens now?

Silver has risen almost 100% since its recent lows. And there's potential for much more. But it is the most fickle and frustrating of metals – it could hit $100 an ounce, or it could send you bankrupt. Dominic Frisby ponders which is more likely.

Given the run that it’s been on, it’s hard not to write about silver in today’s Money Morning.

It’s up almost 100% since its March lows, and over the past few days has gone into one of those parabolic moves that it goes into from time to time.

We have been here before.

Silver – so much potential, so much disappointment

Regular readers will know my long-held cynicism towards silver. 

I own the metal – quite a bit of it in fact, though not as much as I once did, when I was a true believer. I also have shares in a couple of silver mining companies that have finally woken up after a long slumber.

I recognise silver’s enormous two-pronged potential. On the one hand, like gold, it is a monetary metal. The word for “silver” and the word for “money” are identical in umpteen different languages. So it’s a play on all the things that governments and central banks are doing to debase your money – printing it, suppressing interest rates and all the rest of it. 

Silver goes up (and down) for all the same reasons gold does. Not only is it a play on this theme,  it is a geared play. It tends to rise a lot more than gold does – and fall by a lot more too.

On the other hand, it is an industrial metal which gets used in a gazillion different products: computers, smartphones, jet engines, solar panels – they all contain silver. You’ll find silver, if you look hard enough, in batteries, detergent, deodorant, wart treatment, antimicrobial lab coats, 3D printers, plastics, jewellery, cameras, photography, wood preservation and water purification, among other things. 

Just about every new technology, from medical to electrical seems to have silver in it, so owning silver is like a picks-and-shovels play on new tech.

My brother-in-law is trying to import “the best masks there are”, specially designed in Vietnam for the Vietnamese government, apparently – and when you get him talking about it, they do actually sound pretty cool – and these masks contain nano-silver particles. Thus it may be that silver is a play on solving the coronavirus problem.

On the supply side, you will constantly hear warnings (usually from silver-mining companies) of a looming supply shortage. Pure silver plays are rare – silver is mostly produced as a by-product of mining for other metals, especially zinc. I think the world’s largest silver producer is BHP Billiton, and you have to look really hard if you want to find silver on its inventory.

What’s more, rumours about manipulation of the silver price on the futures exchanges having been going on for decades. One day this is all going to unwind, the bad guys will get found out, they won’t be able to deliver the silver they’ve sold – and silver will go to da moon (where, legend has it, it originated). 

So there’s plenty of potential in silver! 

Silver will go to $100 one day. But it could bankrupt you in the meantime. Yet here we are in July 2020, silver is $22 an ounce – not even half the price it was in 1980, not even half the price it was in 2011 when it went to $50 – and everyone’s going nuts about it.

You wait years for silver to make a move and then when your back is turned, off it goes to the races. What can I say? There are lots of powerful narratives to propel silver higher. The fact that it’s cheap relative to its all-time highs is yet another of them.

There’s also the fact there there is about 15 times more silver than there is gold, yet the gold price is about 85 times the silver price. It should be just 15 times. For that to happen, silver should be over $100 – that is the true value of silver.

Silver will go to $100 one day, of that I’m sure. Maybe that is where it’s going on this move. Silver to $100 will just be another episode in the insane year that is 2020.

But when you’re dabbling in silver, just remember this: it is utterly unreliable. It always reneges on its promise; it goes down a lot faster than it goes up; it’s your friend, the alcoholic, with untold potential, if only they could get off the booze. They’re off the booze, they tell you; they’ve got their life back on track – they’ve got a fantastic new job, they’ve re-married. Then they show up at your important job function hammered, insult your boss and the next thing you know they’re wandering round the park with a plastic bag shouting at trees.

Silver’s going up. Enjoy the ride. When it rockets there’s no feeling like it, and these parabolic moves can go on a lot longer than you think. But they can also end a lot quicker than you think. We might see $50. We might also see $15. Don’t be scared to take some profit off the table. And above all – manage your risk!

Until next time,

Dominic

Daylight Robbery – How Tax Shaped The Past And Will Change The Future is available at Amazon and all good bookstores with the audiobook, read by Dominic, on Audible and elsewhere. 

PS If you haven’t already registered to watch Merryn’s upcoming webinar with James Dow, co-manager of Baillie Gifford’s Scottish American Investment Company (Saints), all about where to find the most resilient dividend payers around the world right now, then make sure you do – sign up here (it’s free).

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