Thoughts on Silver

As you know we are more bullish on silver than on gold for a number of reasons, including its historical monetary use, its tendency to outperform gold in secular bull markets as well as an apparent short squeeze in the making.

We’ve mentioned many time over that trying to time an investment is like dart throwing. Not that its impossible but how many people do you know who can get the bulls-eye every time. Nevertheless its always exciting attempting to predict the future.

We mentioned that we expect silver to play out the same way it did in the fast-breaks in both May 2004 and May 2006 (also similar the bull market in the 70s). Each experienced a rapid appreciation, followed by a sharp correction and then a rather long consolidation stage.

The reason this is necessary is because in addition to investors and speculators there are, believe it or not, commercial interests – mines, jewelers, coin dealers, etc. – that base much of their business on the stable price of the metals. When the price rises due to the demands of the market it takes months for these institutions to adjust to the new prices.

We thus expect silver to continue its current consolidation stage until September of this year. During this time we expect many of the equity markets to correct as well in something similar to what we saw last May as a global sell off. This will be succeeded by another parabolic rise in the metal unexperienced in over a generation. We believe that prices may reach to $28 an ounce by May 2008 and possibly higher if demand from Central Banks, China and Russia kick in as well. Once again this is not what’s possible but what’s most probable.

Just a thought to ponder in the meantime:

Berkshire Hathaway has a market cap of about $160B and a cash pile of about $46B. That means that Warren Buffett is now suggesting a cash position of about 28%. Risk-savvy?


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