When Will Silver Prices Explode? by Jason Hommel, August 27th, 2010
If you've wondered why the value of silver hasn't been following the gold trend, you're not alone. Typically silver will follow the trend in the gold market - but we're not seeing that. So when can you expect to see the value of silver take off? According to Jason Hommel that break-out could happen at any moment.
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Many analysts and investors try to guess when silver prices will explode. They make these guesses based on the charts, or even by the fundamentals like I do. I pointed out the fundamental supply and demand numbers in my last article, "1% of 1%".
The Tiny Silver Market attracts 1% of 1%, or $1 out of every $10,000 in the US Banking system, each year.
By the time 1% of paper money tries to buy silver in one year, there will be 100 times as much investor buying of silver as today, which will be about $180 billion trying to buy only 750 million ounces of annual world production, which implies a silver price of about $240/oz., or perhaps higher.
The silver fundamentals are so great, and the silver market is so small, that at any time, the silver price can double, up from about $18-19/oz. now, to about $40/oz.
How can silver prices double at any time?
Because there are over 1000 individual billionaires in the world, and each one of them could cause silver prices to double overnight by attempting to exchange over valued assets for undervalued silver. How can any analyst predict when any one of 1000 people may decide to act? And it is impossible, IMPOSSIBLE, to tell in advance, when a single buyer will try to buy silver in such quantities and urgency that it would move up the price by up to 100% over a few days. Unless you know such a billionaire personally, and unless he or she tells you, in advance, of his trading moves, which wealthy people don't usually do.
For example: The current silver market is dominated by industrial demand, with very little investor demand, for a total of about $10 billion of new silver per year. Most of industrial demand is price inflexible, since the amount of silver used is a very little cost compared to the final item. We might assume that some, but not all, of current demand might wait or delay purchases due to higher prices, but also, higher silver prices might attract additional investor demand, as investors these days are more attracted to rising price trends than they are to excellent fundamental reasons to buy. Also, higher prices may cause panic stockpiling by other industrial users who might wish to lock in lower prices, or secure enough supply in a tight market. Therefore, an additional $1 billion of new buying, over the course of a year, could cause the silver price to move up by much more than 10%. But if a billion dollars tried to buy silver within a month's time, then that impact, if looked at as if it were to be annualized, that would look like another $12 billion was trying to enter the market, and thus, the silver price might move up by more than 100% in a month!
Here's another way to look at what $1 billion of silver buying within a month would do to silver. Currently, we have about $1.9 billion per year of investment demand buying 100 million oz. of silver, which works out to $158 million in a month. $1 billion buying silver within a month would be 6.3 times more than the current silver investment demand.
Therefore, it is impossible to know exactly when silver prices will explode. And there's really no need, is there? All we really need to know, is that silver prices are highly explosive, which is great if you own silver!
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If you've been toying with the idea of investing in silver, this article may answer some of your questions and help you decide if silver is the right investment for your portfolio.
