I think it’s safe to say the this year was a painful one for silver investors…
It’s been a downhill ride ever since silver showed a glimmer of promise at the beginning of the year.
Even some of the most ardent silver investors ditched their holdings to crowd into a stock market that has consistently hit all-time highs. If you had invested in the market index over the past year, you’d be up 15%.
If you stayed in silver over the same time, you would have lost 30%.
It’s even worse over the past two years. The S&P is up a whopping 46% while good old silver was massacred by 54%.
But it’s times like these that separate silver seekers into two camps: investors and stackers…
You see, there is a contingent of people who use silver as a tool to reap big gains over the short term and try to time the market for optimal returns. It’s incredibly hard to do, given silver’s reputation as the devil’s metal for its wild price swings.
The second camp, which we fall into, is the silver stacker.
We treat silver as a hedge against turmoil and a store of value in the face of ever evolving and devolving currencies. We keep buying over time to amass a large stack of silver that can protect our wealth over the long term. We don’t jump in and out of the position…
That being said, right now could be a time where both camps are facing a great opportunity to load up on silver in anticipation of a rise in the coming year. Whether you want to stock up on silver and sell it off for huge gains like we had in 2011, or you’d like to pad your war chest for the long haul, today’s prices offer a very attractive entry point.
Simply put, silver prices have been decimated and are ripe for a comeback.
Here’s why…
The Silver Cycle
We could very well be testing a bottom for silver prices right now. One indication of this is the historical cycle in which silver has peaked, crashed, bottomed, then began rising again. If you look at the last four cycles, silver rode a very similar wave.
Analyst Gary Christenson put together an interesting summary of this trend:
The last four cycles from crash low to high have taken from 1.75 to 2.5 years. That suggests an upcoming high sometime in 2015 — 2016. The last four cycles from crash low to launch low have taken 1.0 to 1.3 years. That suggests an upcoming launch low sometime in 2014. Following the launch lows, highs occurred approximately 0.5 to 1.2 years later. That suggests a high sometime in 2015 or 2016.
This trend would suggest that silver is currently bottoming out, and poised to begin ramping back up over the next year or two. If you consider why silver has historically seen an uptrend, it is in the face of ballooning government debt, a retreating economy, and global turmoil.
How are we doing on those fronts?
Debt: The U.S. national debt is sitting at approximately 18 trillion dollars. To put that in perspective, that is around $56,379 per citizen and $153,726 per tax payer. The debt is a runaway train with no conductor to slam on the brakes. While debt is around 74% of GDP right now, by 2039 the national debt held by the public will reach an astonishing 104% of GDP, according to the Congressional Budget Office.
Economy: While the government reports continue to point to a tepid recovery, it simply could not have happened without government intervention in the economy. While quantitative easing has officially been a success, we believe it is simply a band-aid on a bullet wound. If/when the Fed gets out of the zero-interest rate policy and shuts down the printing presses as it tapers QE, the economy simply will not be able to stand up on its own.
If it has to fire the presses back up and inject more free money into the system, it could be the final straw that breaks the camel’s back.
Global turmoil: I’m sure I don’t need to belabor this point. If you’ve turned on the news in the last year, all you’ve been treated to is a series of ever-disintegrating wars in the Middle East, deadly outbreaks of infectious disease, and widespread social unrest courtesy of the standoff between police and disenfranchised citizens.
I, for one, do not see any of these situations improving… they will get worse before they get better.
Are You a Stacker or Speculator?
While silver has historically moved based on industrial use, jewelry, and silverware, only recently has silver investing really played a major role in silver price.
The most recent report from the CMP Group “Silver Investment Demand” gives a detailed history of this development:
The current period of investor buying, which began in 2006, is the third time that investors have shifted into this role of net accumulators of silver in modern market history. This shift has been and continues to have profound effects on silver prices.
During the eight years between 2006 and 2013, investors have bought about 862.1 million ounces of silver on a net basis, compared to net sales of 1,701.0 million ounces of silver during the previous period between 1991 and 2005.
Research shows that this trend of silver investing will continue, and even speed up as time goes on. You can see that interest in the sheer volume of silver coins that have been flying off the shelves at mints around the world. In 2012, 105.9 ounces of silver coins were scooped up by investors. That number increased to an all-time record of 136 million ounces in 2013 — coinciding with the drop in silver prices. While it dropped around 10% this year, we are still well above historical averages.
The Silver Institute is predicting that “current trends suggest investors might accumulate as much as one billion ounces of silver over the next decade. This would be expected to push annual average silver prices to a fresh record high.”
Again, time will tell, but the trends are working in silver’s favor. That’s why we’re stacking.
But what differentiates a silver speculator or investor from a silver stacker? CPM’s managing director Jeffrey Christian puts it like this:
By most definitions and certainly in my mind, investing is much more a buying and holding activity, stacking silver if you wish, than it is the shorter term activities. Those shorter term activities sometimes are called speculating, and sometimes that is all they are. More often these transactions are taken by longer term investors seeking to earn a slightly higher return on his or her investments by switching among assets frequently – like the frenetic driver constantly shifting lanes on a highway in the hopes of getting there a little bit faster.
Personally, I keep my eye on the road ahead and keep buying. If I see some discounted gas on the journey, I’m going to fill up. If I can ride the headwinds, I will, but it doesn’t change my overall destination…
I’m not sure what the price of silver will be next year. I’m even less certain about what it will be in 10 years. But I do know one thing: I’m going to keep on stacking, and at depressed prices like these, my stack simply gets much bigger, much faster.
