Timing Silver

Being that I am more bullish on silver than gold, I have bought more often, created a wide series of interesting calls that I found quite interesting in hind sight.
First Silver Purchase
As Gold was inching up on its highs, Silver was doing much of the same. Silver topped out at $15, a level yet to be challenged. I made my first purchase two months after gold on August 6th. Silver was trending up. This was most definitely after I had been influenced that silver had far greater potential than gold had. Nonetheless it is also obvious that I had bent to the pressure of the crowd. Although I hadn’t bought in at a top, something I have become quite good at calling and avoiding (as you can see), I had not bought anywhere close to a bottom.

Lesson #4: This is probably the strongest lesson I have ever learned. When a rally occurs, a sell-off will follow. If you’re so late that you can already see the rally, Don’t Buy In!

Silver Purchases 2 and 3 Seeing the above mentioned I realized quickly that a greater buying opportunity was in the making. As we mentioned in the previous article gold and silver sold off sharply in mid-September. I bought heavy. Although this was a absolute bottom for gold it was not so for silver. A bottom since then nevertheless. A Month later I made another similar buy at about the same price.

Lesson #5: The sell-off that follows is usually as great as the rally that proceeded it. Look at these sell-offs as phenomenal buying opportunities.

Silver Purchases 3, 4 and 5 I always had trouble rationalizing this one. I had bought well (at levels that have yet to be questioned as solid purchases) but at the same time I was buying into a rally. I have stayed content with my decision convinced that my inner conscious told me that anything under $12.50 was a pure bargain. (I still feel this way). As the September-November rally grew heavy I stopped buying as you can see.

Lesson #6: Follow your first instincts. They are usually correct. If your a contrarian but something else (general sentiment, fundamentals) is still telling you that you have a real bargain, go ahead and do it. I would have rather seen silver plummet back to $11 than see myself miss the opportunity entirely.

Silver Purchase 6, 7 and 8 These were all during falling prices and after I had properly called topping in silver prices. A bit more patience would have saved me a few dollars, but when playing with so few dollars and limited supply (not every coin dealer always has silver bars available) I took what I could get.

Lesson #7: Patience still would have saved me quite a bit. If you are in a position where you have no worries about where your silver will come from and you feel that prices may be heading lower, they probably are.

So where are prices heading now?
Yesterday I posted a piece on three possible scenarios. In a way I feel they are all true albeit at different times. Looking back at a chart from the 1970s – the last time we saw a boom in precious metals (and interestingly enough also due to booming inflation and a credit crunch) – I noticed that the way many perceive the overall trend is not how it occurs.

There were a series of booms and sell-offs, some that completely erased the previous gains. Thus it would seem possible for even the most disciplined long-term investors to trade in and out of the metal due to high increases in interest and attention.

Look at the follwing chart showing the price movements in silver from 1971 to 1977.


Also bear in mind that these gains were nothing compared to the explosion in price that would occur just 3 years later. Silver hung around $5 an oz. idly for years before compounding 10 times to almost $50 in 1980. Do realize that the long-term trader would not have seen any significant loss from late 1971 all the way till mid-1974, where prices only stabilized and stayed above $4.

What is also interesting is the similarity to todays markets and the movement we’ve seen over the past 7 years.

Let me show you that again…

1970s 2000s

Will silver now trend the $13 line or does it have more room to go? I’m not sure but one thing seems certain as history shows it – There will be some stagnation in the silver price at some point, and it may last a few years. But when the boom does comes very few will have had either the patience and silver in hand to be ready for it.

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