-- Posted 27 December, 2010 | | Discuss This Article - Comments:

The perennial star of the Agora Financial Forum held each year in Vancouver (click here), veteran stock broker Rick Rule came out strongly in defense of silver as a top pick for 2011 in an interview on King World News.

Asked whether silver shortages would continue he said: ‘I suspect it’s true. One of the things that happens at least in the near-term, shortages and the price rises that they cause ironically exacerbate shortages. Meaning that more people are attracted to speculations in silver as the price goes up. The price of course has gone up because of that attraction.

ETF buying

Specifically the amounts of silver that have been bought by the ETF’s and by Sprott Physical Silver, have driven up prices. But the silver they have taken off of the market has not been as easily available to mints that have themselves faced increased demand from retail coin buyers. It’s been very aggressive buying demand that’s really changed the price of silver.’

Then this veteran precious metal watcher turned to pricing: ‘Gold and silver are in some senses unlike other markets in that they are driven by both of the primary investment motivators in the world, that is greed and fear.

The fear buyer buys gold and silver as a consequence of his or her fear about economic conditions, and the resulting price momentum encourages the greed buyer. The greed buyer’s buying in the short-term validates the suspicion of the fear buyer, and you have what are called echo bull markets. I think what you have now is a classic example in silver of an echo bull market.

If you remember the markets in the late ’70’s, the 1977 to 1980 bull market, these echo, or hyperbolic bull markets can continue for an amazingly long period of time.’

Of the prospects for a big spike for sliver he concluded: ‘If past is prologue, that’s very possible. The other interesting thing about silver is on the supply side. So little silver is produced as a consequence of silver mines, that is primary silver mines. So much more of it is produced as an adjunct of the mining of other metals, lead, zinc, copper, gold and things like that. What’s interesting about that is that increases in the silver price do not necessarily result in an increase in supply of silver because their production is tied to other metals.

Base metal connection

Now, it’s also true that the price of base metals are also up, and in a normal market we would see as a consequence of that increased base metals production. What’s interesting about the market that we are in is that we are still credit constrained. Meaning that although the banks have ample liquidity for short-term lending as a consequence of quantitative easing, they don’t have enough on their books to make long-term project loans.

These are the types of loans necessary to build great big base metals mines which would increase the amount of base metals and hence increase the supply of silver. So we are in a very interesting supply/demand situation where near-term demand is strong, but the fact that the demand is strong and the fact that the price of silver is rising has not and may not for a while increase supplies. It’s a very, very imbalanced market in my view.’

ArabianMoney notes that our leading local commentator in Dubai, Jeff Rhodes, CEO of International Assets has also made silver his pick of 2011 as he explained to listeners of Dubai Eye. Jeff is a veteran precious metals trader and claims to have made the last trade in gold at its previous all-time high in 1980.

He is nervous about tensions in the Korean peninsula and points to a complete distrust of paper currencies, particularly the dollar and euro. His view is that even with a 74 per cent increase in 2011 silver is still incredibly undervalued (click here).

The ArabianMoney newsletter will be constantly monitoring the best opportunities for investment in silver and gold during 2011 and a subscription may be your best investment for the New Year (click here to sign-up).