The Golden Rule Includes Silver
10/06/2011 8:30 am EST
There has been plenty of talk about gold, but few investors understand that silver moves in tandem with the Midas metal in the long term, which makes silver very attractive here, says Todd Shriber of ETF Profit Report.
Just three trading days into October, and silver is still having difficulty shaking out of a slump that started last month. Some will undoubtedly call me crazy, but I am still bullish on silver, and I think investors should be, too.
Yes, I liked silver in the high 30s, but I do not feel forced to love it $10 lower. I do love silver here, and here's why.
For starters, I am not a big believer in price suppression by margin hike. Some conspiracy theorists would argue that's exactly what the CME Group has been doing this year with silver.
Conspiracy theories aren't something we should be using to make profitable investment decisions, but the last time CME raised silver margins, silver futures and ETFs like the iShares Silver Trust (SLV) were getting slammed intraday BEFORE news of the margin hike was announced. I think I smell a leak...
Moving on, when a previous silver margin hike came to pass earlier this year, I went back and looked at other recent margin hikes for various commodities that were in bull markets at the time of the margin hike. I looked at gold, oil, and a couple of agriculture commodities such as corn and cotton.
I found the same thing in every instance: The margin hike news was punishing immediately after it was announced, but within a couple of months, the affected commodities I studied recouped their higher, margin-induced losses.
Next, it should be noted that SLV's physical holdings have been relatively stable during some volatile times for the underlying metal. As Tim Iacono noted on Tuesday, SLV's holdings have not been as savagely liquidated following the most recent margin increase as they were back in late April/early May.
That speaks to silver being sold because of the margin hike, and because speculators needed the cash to cover even steeper losses in other securities. What that tells me is that we are not seeing the end of what some would call a secular bull market for silver.
Finally, gold is bottoming. Gold's correction, induced by a combination of margin hikes and the invalid theory that gold's bubble has to burst at some time (keep saying that and eventually you'll be right, though it may take ten years), was healthy and somewhat warranted. And does not mark the end of gold's bull market.
Gold often drags silver higher. That's great news for silver, because none of the reasons to own gold, those being slowing economic growth, debt crises, and currency debasement on both sides of the Atlantic, have disappeared, and they're not going to anytime soon.
Call me crazy, but I think we will see silver trading at far higher levels in three months, six months, and so on.