Sunday, December 19, 2010

Silver going to $6000? Not likely!

I get a little tired of the ridiculous price targets being spruiked for Gold & Silver by market commentators. A recent example of this was in an article from The Silver Bear Cafe. Here is a small piece from the article where the writer extracts the target price:
2) I, like many, estimate there is only about 1B ounces in above ground physical silver for investment purposes.

3) I, like many, estimate there is only 5B ounces of above ground physical gold for investment purposes.

4) If the price of gold is not manipulated, like the banks claim, then the price of silver should be 5x the price of gold due to its supply/demand fundamentals.
Silver Bear Cafe
So Silver should be priced 5x Gold simply because there is 1/5 the amount above ground that there is Gold? Using that logic, if there were only 5 Mercedes C-Class sedans produced and 15 S-Class sedans produced, then the C-Class should be 3x more expensive even though it was cheaper to produce, isn't as well liked or as luxurious as the S-Class. The fact is that an items rarity is only one part of the equation.

Even Max Keiser's recent prediction of $500 Silver is likely to be way over the peak price we will see in this bull market.

A recent article on the FOFOA blog poses the question, is Silver still money today? If the answer is "No" then there is one property that Gold has over Silver, what sort of premium should be reflected in Gold for this difference?

It's all well and good to dream about $6000 Silver, but the reality is that it's not making it to those sorts of prices anytime soon (unless we saw hyperinflation in the currency it's quoted in). Anyone waiting for these sorts of prices will be riding this bull market all the way to the top and all the way down the other side. 1980 and other recent spikes have shown us how savage Silver can sell off in some circumstances, so make sure that you have your exit strategy in place in preparation for the time to sell...


Disclosure: Positions held in Gold & Silver. Not investment advice. Do your own research.

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