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Steve's note: Yesterday, I showed you the True Wealth plan for trading silver stocks. For details on how to handle your bullion position, we're turning to master precious metals investor Chris Weber...
How to Think About Your Silver Holdings NowBy
Friday, April 29, 2011
Over the last few years, I'd written it so much my fingers almost rebelled: IF silver could clearly get above the $26-$28 level, then there'd be nothing stopping it until the $49 area.
The lower numbers were the 50% retracement prices for the bear market from 1980 to the lows of around $3-$4. If silver's price could get above that, it would be final confirmation that this is a new bull market. That would mean the next target would be the record nominal highs reached back in January 1980. Specifically, the high was the London fix of January 21, 1980, of $49.45.
That's the next place I have expected a struggle. Sure enough, it was late January of this year when silver broke clearly above that $26-$28 ceiling. And sure enough, the weeks since then have seen silver vault toward the $49 figure with nothing standing in its way.
It's one thing to forecast the moves, but another to see them made in action. So far, my "mileposts" have proven a great guide to what to expect in this market.
On mid-day Asian time Monday, silver soared briefly to $49.85. Thus, it has – at least on an intraday basis – reached what I thought would be the next obstacle. How it handles this hurdle will give us an update on the very nature of the bull market.
Can it top the old record highs? Silver has not had a rest for months. In the August 31 issue, I detected the calm of silver going nowhere for nearly a year was about to end. Silver was around $19. Sure enough, it started to burst upwards. Not even eight months have passed, and look at the numbers... Just plain silver bought without leverage has now soared as high as 162%. Those following my advice to "make up for lost time" with silver leveraged at 2 to 1 have seen returns double this or much better.
I've gotten letters from dazed readers. I get the impression they've been promised returns like this many times in the past. But they've almost expected the results not to be so great. Here, however, they are. And it's a new experience. Some are implying that for the first time in their lives, they are actually becoming wealthy. It's one thing to be promised this, but another to see it happen before your eyes.
What I want to advise now is to start thinking in terms of keeping or protecting your tremendous gains. In my 40 years as an investor, nothing is sadder than to see tremendous gains evaporate. This can happen if the bull market ends. But it can also happen in case of a temporary but sharp correction. And silver is known for such corrections.
I've had letters from people who have nearly 100% of their assets in silver and gold, including the leveraged vehicles. But ideally, you want to be in a bull market in a way where if your asset plunges to zero you are protected. Your new lifestyle of wealth is unassailable. So this means that you have enough money in places which will do fine if your main asset collapses, even temporarily. Enough so that you don't panic and sell yourself out of the market altogether.
Readers ask me why I am not planning to sell any of my silver. I answer: If you hold cash enough so that it covers your family's expenses for years into the future, you are able to hang on to your "firecracker" asset with no worries. The more "years" of expenses, the better... up to a point. If you have more than 20 years of expenses in cash, that's likely too much.
Yes, cash today in any major currency does not pay much interest. But you aren't holding it for the interest. You are holding it for the peace of mind that comes with being covered if your "firecracker" dreams fall apart. You've got that boring but absolutely necessary cash hoard to see you through.
So that's why if you are in the position of having too much in silver and gold and too little in cash, I now recommend selling enough of the metals to add many months of your expenses in the bank. Yes, I'm talking about the most boring and low-performing instruments: Treasury bills or other super-safe ways to hold cash.
If you've put a lot of your money in silver and silver does what it has been doing, then it is tempting to either "let it ride" or even buy more. But like it or not, that's just greed.
And greed kills.
I want my readers to be around and rich for years to come. I want them all to be in the position where regardless of what the markets throw at you, you'll never panic.
Clearly, if you are heavy on the leveraged silver assets, you can afford to sell enough to build that "peace of mind" oasis. If you reach this state of mind, you'll be amazed at the level of peace that'll descend upon you across the board. It may be a peace so intense you've never experienced it before. And it's a wonderful feeling, especially in these turbulent and uncertain times. A feeling of peace that is priceless. Where you banish panic from your soul. Your mind will become clear. You'll be happy, but at rest.
And you'll still be in the silver market.
I'm not saying to sell all of your silver. I'm advising to think of it in terms of your expenses... Let's say these are $10,000 per month. If you sell enough silver to cover several years worth of them – or even one year's worth – you'll notice the difference in your total outlook.
By all means, retain enough silver so you continue to build your wealth if silver keeps rising. But own enough cash so you won't panic if it doesn't.
Most people make the same mistake. They are lucky enough to have money in a tremendous asset at the right time. They then keep pouring money in. They have nothing left in case of a sharp correction. So when that correction comes, they bail out. Then they kick themselves for the rest of their lives after the bull move continues.
Please, don't let this describe you. Don't let greed take over. Sell a little silver, enough to buy yourself some insurance. You buy fire insurance in case of a fire. But those are fairly rare. Silver correcting by falling in half in a few months after it has soared? That's not rare. It happens in all silver bull markets. The bull wants to shake people off of it. If you don't take my advice, you're making it easy for the bull to throw you.
I bring this up now that silver is at the "$49 door." Don't be a chump, a sucker. Don't be a bad investor. Build your cash up to where you stop worrying what silver does in the short term. If your life would be destroyed if silver collapsed and you sold in a panic, then I'm talking to you.
Do this and you rise in the ranks from amateur to professional. Play your cards right and this silver bull market will make you a wealthy person. Someone who never needs to even talk to anyone you don't want to speak to. Who never has to do anything he or she doesn't want to do.
That's real freedom. And how many people do you know enjoy it? Truly wealthy people think in an entirely different way from everyone else. There's no reason why you can't be one of them.
Late Note: Yesterday, at 11:30 a.m. EST, spot silver made a second attempt to best the old highs. It briefly touched $49.51 before plunging over 4% in the next hour. I'll have much more to say about this, and the best way to handle it, in the next issue of my newsletter, coming out on Monday.
Good investing,
Chris Weber
Further Reading:
When Chris talks precious metals, we listen. And we hope you do, too... Check out some of the recent advice he's shared with DailyWealth:
The Best Investments I've Ever Made, April 22, 2010
"Truly, the precious metals are far from being in bubbles," he wrote. Gold is up 33% since his essay last April... Silver is up an astonishing 167%.
If You Haven't Bought Silver Yet, Read This, November 3, 2010
"Silver is supposed to crash at certain times... It can almost be relied upon to do this," Chris wrote in November. "Not this time." He was right. Silver has been on a relentless tear, nearly doubling since we first published this.
How to Spot the Top of the Gold Market, December 22, 2010
When fear replaces greed, Chris says people will "be buying at prices far higher than those prevailing today." Gold hasn't taken a breather in more than three months.
This Is the Critical Number to Watch for Silver, February 17, 2011
"My next bullish target is $49," Chris wrote in February. Silver is within 1% of Chris' target.
Market NotesAN IMPORTANT UPDATE ON SILVER About two years ago, we "prepped" readers for the coming volatile moves in silver and silver stocks with this essay. The "crux" of it was...
If all assets were patients in a mental ward, bonds would be the guy who sits silently in the corner and stares out the window. Stocks would be the guy who wanders the hall and mumbles to himself. Silver would be the guy locked in the padded room all day.
Since that essay, silver hasn't disappointed us in the volatility department. In one of the most amazing moves of any asset over the past decade, the metal skyrocketed 140% in the past eight months. Folks who have taken our advice to buy the stuff have made a fortune. And while we're long-term bulls on the metal, we must remind readers what can happen in the silver market...
While silver can enjoy "holy cow!" moves higher, like we've seen since last September, keep in mind the metal can also experience "holy cow!" moves LOWER, too. It's not uncommon for an asset like silver to "retrace" big moves by 50% to digest gains and shake off latecomers. If silver experienced such a move, it would take the metal down to around $33 per ounce. Given silver is one of the most volatile assets in the world, we wouldn't be surprised to see it!
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