Long on Silver? Beware the rampers!
Long on Silver? Beware the rampers!
Having read a number of articles ramping up the price of silver recently I just have to be a contrarian and set the cat amongst the pigeons…..
To the point. Smart investors were in ages ago and are selling into the bubble, yes, bubble, to crystallise profits. It’s a fools game buying in at this late stage on a speculative statements that silver could hit $50 or $60 and ounce. Anyone can come up with numbers like that, it’s easy! Look, silver could hit $75! You heard it here first! You have a go!
So why am I bearish on silver? Look at the evidence and judge for yourself…..
The price of oil went from $30 a barrel to $147 in around 3.5 years. This is 5 x the price. The latter part of the bubble lasted a year when the price almost trebled from $52.
Take a look at the price of silver….
Can you see the similarities between the current silver bubble and that of oil in 2008? The price has quadrupled in just over 2 years. Yes, that’s 4 times the price it was just 2 years ago.
I’m not saying that silver will not go higher. It may. But the downside risk from this bloated level is too great and better value exists in other precious metals when we compare on a relative return basis.
We are all aware that gold has rallied strongly to an all time high this week, but when we compare gold and certain other precious metals with silver and the FTSE 100, the rise in the price of silver makes the rise in gold look flat!
When we look at this over the latter part of the silver bubble, well….
Interestingly, oil ETFs grew 100% in the 22 months to July 2008, silver ETFs have grown by 225% in the 22 months to April 2011.
There WILL be mean reversion as we see above with oil. It could happen at any time.
My advice on silver? If you are already in, get out. If are are not in, stay out.
This article represents the personal views of Mark Woods, Managing Director, Watermark Financial Solutions.
The value of investments is not guaranteed and can go down as well as up.