If You Believe In Reality….Buy Silver

January 31, 2014

Watching the price action of silver these past few weeks reminds me just how long the long term is. Identifying the fundamentals for an asset to move higher is one thing—it is something quite different to actually be able to “sit tight and be right,” as the great Jesse Livermore reputedly said, to ride a bull market to its top. Bull markets do their best to throw followers off the market’s track to higher prices. Years can go by where price does nothing and exhaustion or indifference among the former bulls starts to set in. I do believe that is where we are right now in the silver market, as I have repeatedly made comparisons to the 1968 to 1971 correction. A comparison—I might add—that everyone else covering this space seems to have forgotten. On the way from under one dollar to nearly fifty, silver took three years to be cut in half, from roughly 2.60 to under 1.30 before resuming what would go down in the history books as one of the great bull markets in history. I can cite plenty of other examples of commodities (it always seems to be the commodities) going practically nowhere for years before exploding higher 5, 10, or 15 times in short order. As in life, all we have in investing are opportunities (especially with cash yielding nothing). If you are someone involved in the silver space, I hope you are able to hang on to your investments, even if price goes nowhere this year. Try to remember the long term.

I would also ask you to try to remember reality. You know that thing that Wall Street and their affiliated asset-gatherers would very much try to get you to forget. There is a very long list of things that conventional investors would like to pretend are not true—but these things are true. And they are reasons that silver will move higher in years to come. Maybe not tomorrow, but with time.

  • In 2013, even using unreliable and likely overly optimistic government data, the U.S. economy grew at less than 2%.  Not exactly my idea of a recovery, and not exactly a great reason capital should “flee” to the U.S, as so many equity bulls would have us believe.
  • Just yesterday, another Chinese official openly called for diversification away from the U.S. Dollar as a global reserve currency (whatever you may think of China’s future prospects at becoming the world’s biggest economy.)
  • Paper claims on physical gold in particular continue to grow (silver is not far behind.)
  • Meanwhile, mints around the world are working overtime to meet physical demand for real, physical metal. 2013 was a record year for coin and bar purchases.
  • Gold and silver are not only commodities, and they are not only financial assets. They are money and they are real assets.
  • If everyone is so convinced that a strong global economy is just around the corner, why are interest rates in most western nations at 0%?
  • But regardless of the state of the global economy, real demand for all of the trinkets and contraptions demanded in the 21st century might mean that silver’s industrial demand could grow at a faster rate than mine supply in the years to come.
  • Chinese solar demand (bear in mind solar panels use quite a bit of silver in amounts that cannot be easily recovered) is by some estimates set to grow five times over the next 6 years.
  • Central bankers around the world continue to believe that there isn’t enough inflation in the developed world.

This last point may be the most significant one longer term. I don’t believe that you can trust the same people who by their own admission did not see the last crisis coming from being able to fine tune their own policies so as to avoid serious inflation in the years ahead. In fact, it might even be the case that central planners wouldn’t be too concerned about inflicting some inflation on the broader economy, since these same central planners seem to view the economy as one big academic monetary experiment. Their most recent experiment was quantitative easing—and we have all seen how well that worked for the vast majority of people in the developed world (hint: it didn’t.)

To be honest, we have no idea what the central planners have in store for us in the years ahead. The great confidence placed in them of late for levitating stock prices can just as easily give way to anger if these leaders preside over another stock market down turn. Put differently, do you really believe that the economy can be so easily controlled by academics like Yellin or Bernanke? If you have any doubt that the economy is actually a force of nature, as uncontrollable as any winter storm or tropical hurricane, you may then want to think twice about leaving all of your wealth in the system.

Put differently, gold and silver not only represent a vote of no-confidence in central planning—they also represent a vote for reality.


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Ryan Jordan currently teaches U.S history at the University of San Diego. He has previously taught at UC San Diego, Lafayette College, and Princeton University, where he received a Ph.D in 2004. His book, "Silver- The People's Metal," published in 2012, recounts the past, present, and future of the silver market.  Visit Ryan's blog: http://silvernewsblog.com

Gold falls on firm dollar, China rate cut lends support