-- Posted 2 July, 2007 | | Discuss This Article - Comments:
July 2, 2007
This article is not as timely as I would like as I have been traveling in the remote Indian Himalaya and have very little access to internet. Since my advice to sell at the end of February, we did get a nice pullback with buying opportunities in the high $12 range. There was another intermediate high in mid to late April but I was in the middle of nowhere in Turkey then and could not publish a timely article to advise taking profits. I’m trying to do research and post this on a dial up connection so wish me luck. This will be a highly summarized article and if you read my previous work you can follow the logic I use. I also will answer at the end a common question “How do I buy silver?” which I am asked by a number of readers.
I bought recently on June 13 at $12.90 when silver corrected to its 200 dma, which has been a good place to buy during the past two years. Then I bought the remaining half of my position on Friday around $12.30. I am now fully invested. It is important to note that I am not currently using any leverage because I can’t follow the markets daily. Keep that in mind as you follow my analysis and make your own decisions. Silver fell discouragingly through its 200 and 300 dma but appears to have bottomed. It has broken through the lower end of the upward channel I drew on the Feb 27 graph in my last article. This doesn’t necessarily mean we are going lower, but I would watch carefully the $12.25-$12.00 range. If I were using leverage, I would exit long positions at a loss if we close below that. This would indicate that we will have a rough summer for silver and lower prices possibly even below $11 could be realized. I cannot give you an estimate of an absolute bottom. I can only analyze week by week as the market moves.
Gold is holding support at its 200 and 300 dma and should help keep a floor on further drops in the silver price. A breach of $640 would also be bearish for gold and silver in the short to intermediate term so keep an eye on that. Gold and silver both have RSI in the 30 to low 40 range right now although they are closing higher today as I write this. Based on RSI history this is a relatively low risk time to buy. The third graph I posted below I have been maintaining using COT data for almost 4 years. The COT data are not as reliable (correlation to price now only 69% for 2007) as they once were, probably because institutions are using the Silver ETF to do some trading and it is not all going through the commercial traders making the market on the COMEX. However, we are near a relatively low point (good for buying) with commercials net short 47,922 contracts and non-commercials net long 27,852 contracts.
In any event, I think this is a very low risk buying opportunity for cash purchases of silver (and gold, for that matter) for long term holding. I would not be surprised to see a small rally in the next month or two, which I may miss in the next 30 day trek in the Ladakh/Zanskar wilderness. If we rally quickly to an RSI in the high 60’s you might take consider taking partial profits or hold for bigger gains in the fourth quarter of this year. It is possible to see again a great buying opportunity in silver and gold sometime between the end of Aug and the end of October. This is typically a weak time for the metals and if you are waiting or hoping for further weakness to buy, you should complete your puchases during that time frame. However, the lowest point may have already past last week, so you might miss out if you wait for lower prices. I will try to post further analysis as my travel schedule and internet access permits. If you’d like to follow our world travel adventures, please check out the travel blog which my wife has been maintaining at http://travelingsilvers.blogspot.com. Again I regret that I cannot respond to emails personally due to limited internet access but I still enjoy getting feedback and comments from readers.
How to Buy Silver
Some readers have asked me to recommend how to buy silver. Below is a summary of things I have emailed as responses in the past.
There are several different ways to buy silver and I believe that physical silver safely stored is the foundation of a good investment portfolio. If you live in a big city, the best place to buy bullion in smaller quantities is from a large, reputable coin dealer. If you call several of them, you can get an idea how much markup over "spot" price they charge for specific types of bullion. Ask what a 100oz Silver bar by Englehard or Johnson & Matthey costs and how much they charge for a 1 oz gold American Eagle or Canadian Maple Leaf. Those are common bullion types that anyone should be able to quote you.
You want to understand how much you will pay over the spot price (listed on Kitco). You can check Kitco's bullion store - https://online.kitco.com/sellprice/completelist.html for a reference on how much they charge. Try to get silver for 5% premium or less over spot. 100oz bars would be best to buy, but you may want some 10 ounce bars too. You'll pay more of a premium for those. Try to buy brand name refiners like Englehard, Johnson & Matthey (JM), Amark, or Sunshine Mining stamped on the bars. They are easier to resell. 90% silver US coins made before 1965 (Sometimes this is called "junk" silver) is a way to buy silver for small quantities but you will likely take a 10-20% hit when you sell as it is not pure silver. I don’t really recommend those unless you are buying very small quantities. You would be better off buying 100, 10, and 1 ounce bullion bars or rounds from known refining companies. Again on Kitco’s site you can see what they pay for different types of silver.
If you don't have a good coin dealer nearby, then I recommend going to David Morgan's website store at http://www.silver-investor.com/silverbullionsellers_report1_non.htm and buy the "Silver Bullion Sellers" report for $49. They document their purchasing experiences and prices paid for 10 US dealers. If you are buying any large amount of silver, this report will probably save you $$ and hassle.
I recommend storing your silver in a bank safe deposit box to prevent theft. If you are worried about storage costs and hassle, you might want to check out www.goldmoney.com. They allow you to deposit money to own a share of phyically backed silver or gold. Your money is stored in ounces of silver or gold grams and you can add and withdrawal as you like. It looks interesting and might be one way to diversify where your bullion is stored. Also, it might be a good alternative to having a lot of $$ in a savings account if you think that US dollar will go down in value in the future.
For very large purchases of silver you could also open a futures account, buy a silver contract paid in full and take delivery of it at the end of the month. Then have it stored allocated for you in a COMEX approved warehouse. At current prices, this would be a minimum investment of $62,500 for a contract of 5,000 ounces.
I don’t specifically recommend or not recommend investing silver in the proxy Silver ETF (ticker SLV). There is some debate on whether there are loopholes in the prospectus that could mean the physical silver doesn’t actually back the fund. I am not an expert on this so please don’t grill me on it. SLV or silver stocks are a way to gain exposure to the price of silver as it goes up if your only investment funds are locked away in stock accounts. It is possible to buy bullion to fund and IRA too which would be worth considering, especially a Roth IRA. The details of that are beyond the scope of this article. For silver stocks, there are many good analysts out there, but I personally subscribe to David Morgan’s “Morgan Report” and find his work insightful and profitable.
Finally, you probably have a lot of questions about buying silver and precious metals that I can’t answer individually. I can personally recommend a seasoned professional that can be of great assistance in providing you with information regarding investments in precious metals, including silver, gold, platinum, and palladium in coin and bullion form. There are many forms of investing available to you, such as: storage, delivery, leverage, trading, and even transfers from existing IRA's into precious metals. For personal assitance please call Holly L. Mannino at 1-800-949-4653 extension 2912. If you reach an operator just ask for Holly. Best time to reach her is 7am to 4pm PST.
Best wishes on your investing and future and God Bless,
Disclaimer: This article represents the opinions and personal views of Timothy Silvers and is not intended to be investment advice. If you choose to use this analysis for your personal trading, Timothy Silvers assumes no liability for the direct or indirect losses you may incur due to using this article to make your investment decisions. You are totally and completely responsible for your own investments. At any given time, Timothy Silvers or his friends and relatives may have positions in silver related investments that may or may not follow the recommendations contained in this article. The information in this article may not be completely correct and accurate. Even though Timothy Silvers has done his best to review the content and accuracy of this article, he is in no way liable or responsible for any mistakes or omissions.
-- Posted 2 July, 2007 | | Discuss This Article - Comments: