-- Posted 2 March, 2011 | | Discuss This Article - Comments:

It does not seem uncommon to log online or turn on a TV and see silver head higher.  Save for a few weeks in January, the trend toward higher prices has been in effect since August, when most people were still thinking silver at $20 was overvalued.   At $33, it’s still a bargain.

For a moment, it would be important to discuss market theory and market thinking.  Realize that investors are subject to what the market believes their silver to be worth, and in many ways, the market can be unforgiving. 

Even John Maynard Keynes understood that, “the markets can stay irrational longer than you can stay solvent,” a message to anyone that is playing in a game with six billion other people, many who may not ever value the same things you do to the same degree.

Volatility Ahead

If you haven’t realized by now, there is plenty of retail money making its way into the silver market.  While this is not necessarily a bad thing, it is money that is made up mostly with inexperienced investors.  There’s nothing wrong with inexperience, except that we have to play in the same market they do.

Keep in mind that as silver heads higher, percentage moves are sure to stay the same on a day to day basis—which for silver could mean 3-5% every day of the week—but prices moves are going to be far greater in terms of dollars.  Those points are elementary and obvious, but realize that these changes in price will greatly affect the mindset of your average investor.

That is, $1.50 up days are going to appear on the charts as a record breakout—and to that same end, $1.50 down days are going to look like the trend has broken, and the world is ending.  Both are insanely normal percentage movements for silver, but we’ve breached a new psychological level where investors must consider that they’re gaining or losing one dollar per ounce on a routine basis.

Does this greatly affect the futures of the metals markets?  Probably not, but realize that we say “probably.”  Of course, there’s no way to know, but there is plenty of room for additional volatility when investors from 2000 start realizing that the daily change in silver affects their gain or loss by 20%.  Imagine being up 450% one day then 430% the next.  That’s a wild ride!

Current Events and Markets

The current political climate around the world is sure to only compound the psychological market movers.  Keep in mind that with each passing day, the world is overthrowing bad governments and hoping to replace them with good ones – all the while millions are starving, and central bankers continue to print, making the price of everything rise.

These are turbulent times, and turbulent markets should be anticipated.  Continue on as if silver were $10 because when we look back years from now, $33 will look even cheaper.

Dr. Jeffrey Lewis

www.silver-coin-investor.com