Despite, the current low silver price, investment advisors express opinion that now might be the right time to take positions in physical silver.
Investors are actually not selling their physical silver and gold. Holders of paper gold and silver investments sell, because it is easy to do so. But you can’t put your gold and silver in a box and ship it back to the supplier to sell it. That takes a lot of effort. So far, there is no stop for the record amount of individual buyers who have been snapping up physical silver and gold supply over the last few months. From Chinese housewives to rich Indian residents of Dubai, everyone seem to be very much interested in buying physical silver and gold right now.
While the likes of Goldman Sachs close their short position and J.P. Morgan Chase tell investors they are expecting higher prices for gold by the end of the year, at over $1,700 an ounce, there does seem to be some bullishness on the horizon. At present, all eyes are focused on the dollar. The dollar is strengthening and the precious metals are weakening. But for how long this will continue?
While a stronger dollar, and higher stock market are tempting investors to chase returns, the smart investor is bailing out of the stock market on an incremental basis and buying the beaten down assets; gold and silver. But not buying the paper substitutes. They demand the real thing.
In the context of the current U.S. Dollar valuation bubble, silver’s eventual price rise seem inevitable. This paper currency bubble commenced with a desperate flight to quality, despite the fact that the U.S. Dollar had been an intrinsically worthless currency since it was taken off the gold standard by Nixon in the early 1970’s.
Silver is one of many sought after investment choices when risk aversion is high. What makes it a convenient choice happens to be that the white metal has special qualities that have historically made it one of the best forms of money.
The key is not to say that silver would necessarily become a medium of exchange, although it might indeed be useful as an asset that could be bartered in an emergency situation.
Still, once the U.S. Dollar devaluation finally occurs, silver’s use as a medium of exchange in the aftermath would probably quickly transform into the metal’s other traditional use as a store of wealth.
In other words, what above ground silver is left would very likely return to the vaults, probably being held as the basis or backing for the next new script. The fiat currency cycle would then begin again.
While having sound money like silver seems like the rational thing to do, the short term pain of this transition from the paper Dollar seems unbearable and impossible to reconcile other than in an emergency situation. This self-reinforcing collective fear of short term pain is also why the politics reflecting this seem so entrenched.
The U.S. Dollar is a debt-backed currency. Never before has such an intrinsically worthless currency survived very long as a medium of exchange. Eventually, the interest payments on the debt become too high to service and the inevitable bursting of the Dollar bubble will begin. A small rise in the rate demanded for debt would quickly eclipse tax revenue.
The silver trader’s dilemma
Trading paper silver rationally seems nearly impossible. Nevertheless, the paper price does not really matter as long as you are a long term physical investor and not a short term futures trader.
If you are an equity trader, you are typically better off by just buying an index, which usually beats the hedge funds that use it as their yardstick.
The moment that confidence in the U.S. Dollar eventually breaks, the opportunity to buy silver will be over. Sadly, complacency currently rules and that precious moment will be lost to those investors who preferred to wait on the sidelines rather than jump into the chronically undervalued physical silver market with both feet.
Price controls are very powerful and can effectively shape perception, even where history is readily available, evidence of a paper versus physical separation exists, and the shortage of physical silver is widespread.
The short term price and investor anxiety usually effectively obscures their ability to perceive this situation. This phenomenon seems especially notable among the waiting multitude who are otherwise one step away from the internal shift to buying silver.
When the true value of silver hits them, the precious metal becomes the obvious investment choice.
Silver may never return to its constitutionally mandated position as an official currency, its long forgotten status as the coin of the realm, but that does not mean it will not be an excellent future investment for you and your loved ones. In addition, a very affordable investment with an option to build positions gradually.
Once the revaluation of silver occurs, the lesson of its value as a store of wealth and a medium of exchange will not soon be forgotten.
