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This Is the Critical Number to Watch for SilverBy
Thursday, February 17, 2011
Here's my dilemma: I love the silver and gold area. I have more money in silver than in any other asset. And combining both silver and gold, I have about 75% of my total net worth in these two precious metals. This includes everything else I own: property, stocks, cash, etc.
To me, silver is that asset class that has the most potential to give profits in our age. So far, this has been the case. From $4 in late 2001 to nearly $31 at the end of last year, this is a profit of over 650%. You tell me if any other index or asset class has done better since 2001.
But, knowing silver as I do (I first bought it back in 1971), I know that it can quickly plunge, even if that plunge turns out to be temporary. And the last thing I want for my newer readers is for them to buy silver in large percentage terms and then see it fall by 30% or more. My heart has been sick at the numbers of people who have panicked and bailed out of silver when this happens. Usually, they never get back in.
This was the case for the last great silver bull market in the 1970s, and it has been the case this last decade. Last time, silver soared from $1.29 to around $48. That's a rise of over 3,600%. Yes, I was lucky to get in near the bottom and get out near the top. But I simply bought and held during all the many plunges during that time. But when silver plunges over 50% in a few months, the instinct is to panic.
We've seen such a move already this time. In March 2008, silver had just popped above $20, having soared by nearly 80% in price since that prior August.
Then it corrected.
First, it plunged quickly to the $17.50 area, a fall of 20%. Then, like most corrections, it made a mild stab at a recovery. But the highest it ever got was still well below the old high. It got, I believe, to $19 and change – still a good 10% below the high. And then, it fell fast and hard, the way silver always does when it corrects. By October, it had broken below $10, and the total loss, from peak to trough, was 60%.
Of course, by late October of 2008, most silver holders had bailed out, unless they listened to me and kept calm.
Now, fast-forward to today. I have been prepared for a similar correction in silver after what it has done starting from those $8.80 lows in late October 2008 to just at the end of last year, at $30.91. That percentage rise was 251%.
But here's the thing... Silver is not correcting like it usually does.
Yes, it fell back in January from the $30.91 peak of December 31 to a low of $26.68. Actually, it was a double low. It reached that price on January 25, then rose, and fell again back to this level on January 28. Since then, it has been all up.
So consider it... Silver falls initially from $30.91 to $26.68: a fall of 13.7%. Normally, this is a small initial fall, and you'd expect to see a sharp initial fall of 20% or so. But then, it charges up again.
I'm telling you, I've watched the silver market for four decades in "real time" and much more than that in research, and I have never seen such strength.
So even though I would prefer to get my new readers into silver at much lower prices, I can no longer in good conscience advise my readers to wait on the sidelines in hopes of getting a discount.
You have to make a hard choice now. Ideally, you want to have as much of your money in silver so that if it never corrects back to $20 or even $25, you'll be in a position to profit from the big rises of the future. However, you don't want to have so much of your money in silver that if it finally does correct to those levels, you'll panic, lose heart, and sell out.
If silver goes over the old highs and keeps on going, this will mean the silver bull market is one of a strength so great as to make it a force of nature.
The next few days or even hours are critical.
If silver can close above its "old" $30.91 of just New Year's Eve, we are likely in for another leg up. My next bullish target is $49. I had expected a bigger correction first. But in this world, you take what you get and work with it as best you can.
Good investing,
Chris Weber
Further Reading:
"Can you imagine what would happen if every investor on earth became convinced they needed to own some silver?" Chris writes. "My old forecast of $187 per ounce may start to not look so wild." Get more from Chris and other DailyWealth favorites in our silver series here:
Market NotesTHE AG COMPLEX HAS EXPLODED Today's chart is an update on one of our favorite "guru-approved" trends we've talked about for the past several years. It's also an update on why folks around the world are rioting in the streets...
Our chart displays the extraordinary rise in the price of basic agricultural commodities, as represented by DBA. This fund is a "one click" way to own a basket of agricultural commodities like corn, wheat, soybeans, sugar, and livestock.
Like most assets, the "ags" were clobbered in the 2008 credit crisis... and they generally traded sideways from early 2009 to mid-2010. As we noted back in October, DBA make a major upside breakout to clear this sideways pattern. Since that breakout, tight supplies and rising demand have sent this fund skyrocketing to $35 per share.
This move is producing major gains for companies like our "farm income through the stock market" fertilizer producer Mosaic (MOS). It's also driving up the cost of basic foodstuffs around the world... which leads to riots in poorer countries. The situation is great for resource investors, but bad for oppressive dictators.
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