What's going on with silver?

[Ad Orientem]

Current spot is $15.31 with the silver to gold ratio within spitting distance of 80:1. Dear G-- I'm actually thinking about taking a trip to my local coin shop tomorrow and picking up some generic bars. Something is wrong. I need to go lie down.

[Ad Orientem]

To add... I'm not a silver guy. But the spot price has dropped dramatically from its 2011 high of $49. And even more interesting is the gap in the silver to gold ratio. 80:1 (!) has been the very high end for what might be termed a normal price ratio. Going back to the early 1970's this has typically been a buy signal indicating that silver is undervalued relative to gold. See this...

http://www.kitco.com/commentaries/2016- ... atios.html

I can't ever remember speculating in precious metals, and silver has held little interest for me. But I am starting to think it might be time to stick my toe in the silver market. Even if metals continue to fall relative to paper money (which given the current macro economic situation might well be the case) it seems likely that the gap between silver and gold will close and any silver could then be flipped for gold. Hmmm...

[whatchamacallit]

Same deal with platinum which is supposedly more rare than gold. Platinums existence as a precious metal more rare than gold makes me question holding gold.

[Ad Orientem]

Platinum does not have the same historical pedigree as gold (or silver for that matter). As far as I know it has never been widely employed as a store of value or a medium of exchange for goods and services. And it is not very liquid.

[Xan]

Just the fact that something is more rare than gold doesn't make it more valuable.

[eufo]

I've been dipping into buying some physical silver once we went below $16/ozt. Seems a bargain to me. I doubt I'll get any platinum, palladium, rhodium, etc.

[Cortopassi]

Cheaper now....

[Ad Orientem]

Silver is in something close to free fall. As of this moment it's trading at about $14.50. and the silver gold price ration is at 82:1. I've been extremely busy over the last few days and have not had a chance to get to the coin shop. If I can't break free today I may just order some online.

[ochotona]

Silver is in something close to free fall. As of this moment it's trading at about $14.50. and the silver gold price ration is at 82:1. I've been extremely busy over the last few days and have not had a chance to get to the coin shop. If I can't break free today I may just order some online.

Free fall and 82 sounds irrational

[eufo]

We all know how irrational works. It can go deeper than anyone expects. I just placed another order for silver. I'm going to buy more gold soon too. My US Dollars are putting in some awesome work! I've been cash heavy for a bit and was worried about so much exposure, but it turns out that was the thing to be in.

[ochotona]

Radomski thinks the extreme ratio is 100 : 1. See Gold Scream Room thread.

[Ad Orientem]

Ok, I couldn't hold back any longer. I ordered a couple hundred generic 1 oz. silver indian head rounds from JM Bullion today. At slightly under 50 cents over spot, and spot being $14.81 when I ordered... I felt like like I was taking advantage of somebody's misfortune. Usually I would only expect that kind of low premium when buying larger bars.

[murphy_p_t]

Pslv at greater than 4% discount to nav.

[ochotona]

Gold silver ratio is 82

[Ad Orientem]

Gold silver ratio is 82

My finger is on the trigger.

[Ad Orientem]

Just got off the phone with 3 of my local coin shops. Two have been pretty much cleaned out of silver bullion. One still has some silver eagles at around a 20% premium and a bag of junk silver dimes for sale at spot. Hmmm...

[ochotona]

84

[barrett]

Just got off the phone with 3 of my local coin shops. Two have been pretty much cleaned out of silver bullion. One still has some silver eagles at around a 20% premium and a bag of junk silver dimes for sale at spot. Hmmm...

AdO, Do you have specific expectations of what silver might do for your portfolio (under what scenarios it might prosper when other assets do not), or does it just feel good owning some?

[ochotona]

And, is bartering with silver a real possibility, or just doomer p0rn?

[Ad Orientem]

My recent silver buys, about 450 ozs over the last two weeks, is speculative. Which is to say that it is not intended as a modifier for my HBPP.

My rational for silver is...

* PMs have been in a multi-year bear market. As usual silver is showing much greater volatility than gold and has dropped about 70% from its record high of near $50 oz.

* I think (read 'hope') that the worst of the bleeding is over. With base production costs of $10.50-$11.00 oz for extraction and then adding on costs for refining for industrial use or minting for collectors/investors I believe (again 'hope') my downside risk is limited. Can it go lower? Yes. But another 10% drop would put it below $13.00 oz and I think that would be getting pretty close to silver's hard bottom below which miners would begin to lose money.

* At least some of the recent severe declines has been the result of short selling. That is becoming a crowded trade and with prices this low the risk reward ratio for short sellers is no longer looking all that attractive. My gut says we will begin seeing the shorts covering and moving on to their next target.

* It feels cheap. All of my silver purchases have been with the spot under $15 oz and with the silver/gold ratio upwards of 80:1. Although not a record, that is certainly high from an historical perspective and in the past has signaled that silver was over sold, especially relative to gold.

* All of my purchases were of products that were "on sale." I got 200 generic silver rounds and 20 10 oz silver bars for .49 cents over spot. Yesterday I picked up another 40 generic rounds at an LCS that was a bit out of my usual travel radius for shopping. They were a mix of different rounds, some long since discontinued, and I got them for .30 cents over spot.

Potential Upsides

* Silver is both an industrial metal and a precious metal. Both inflation and a strong economy could propel demand for silver.

* I think silver is at least moderately over sold. But that falls under the heading of a gut feeling and other than the silver gold price ratio I have little hard evidence. But my SWAG (scientific wild ass guess) says silver should probably be around $18-20.00 oz.

* Silver is far more useful for smaller routine purchases in an SHTF scenario than gold. I do think gold is the better long term investment, but everybody in the HBPP should have a little silver for this reason. I have heard anecdotal reports that silver and gold have become a medium of exchange in Venezuela along with stable first world foreign currencies like the dollar and euro.

* Speaking of gold, even if silver does not recover dramatically relative to the dollar it is likely the silver gold price ratio will narrow and stabilize once the heavy selling abates. When that happens, I expect to flip at least some of my silver for gold.

Potential Risks and Other Negatives

* Even if I'm right about silver being near the bottom, that doesn't mean it's going to bounce. Silver, like any commodity, needs a catalyst for major price moves to the upside. If I'm wrong about the fair mkt value of silver it could hit bottom and just go splat and stay there for possibly a long time.

* Silver's dual role as an industrial metal as well as a precious metal could be a drag. In a severe economic crisis that affects the value of the fiat dollar gold will rise. But that same economic crisis is likely to hit industry that uses silver which could be a drag on silver's response to a weak dollar.

* As I am beginning to discover, being much cheaper in terms of raw price than gold has it's own disadvantage. What I recently spent on silver would have bought 5 gold eagles which I could easily just drop into my safe deposit box with the others. But 400+ ozs of silver, while very pretty and fun to look at, is going to create some safe storage issues. I see a second safe deposit box in my near future. Probably a much bigger one, along with the added expense.

[dualstow]

I see a second safe deposit box in my near future. Probably a much bigger one, along with the added expense.

I read your entire post with the urge to ask you if you store all that at home.

[Ad Orientem]

We just touched a silver to gold ratio of 85:1. That's not an all-time record. But you would have to go back to the early 1990's to see it this high.

[ochotona]

What is the all time high? 100?

[Ad Orientem]

What is the all time high? 100?

Yeah, give or take.

[dualstow]

Well, you’ve influenced me. I picked up a few silver Roos.