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Could silver drop to $25 an ounce and then rebound to $60?

By: Peter Cooper

-- Posted 29 June, 2011 | | Discuss This Article - Comments:

The problem with trying to make market calls about a highly volatile commodity like silver is that you get it right about as many times as you get it wrong.

ArabianMoney can happily point to our prediction back in December that silver might spike to $50 early in the New Year (click here). Brilliant, we got that absolutely right. But what about our warnings last summer that silver prices might fall? Ah, well they did not and if you sold then you missed the best silver rally in 30 years.

Buy and hold

Buy and hold your poor man’s gold! That is our best advice for investment in a highly volatile commodity. Leave the trading to George Soros who also makes big mistakes from time to time. Trying to time an entry point for new silver investments is another matter.

The ArabianMoney newsletter this month (subscribe here) points to the end of July as looking like a low-point for silver, and has some interesting ideas for subscribers on how to best profit from the price hike to come. That low may be close to the current price of $34 an ounce or the $25 cited by some keen chartists and followers of the fibonacci series.

At a more fundamental level the silver price probably comes down to what happens in Greece and the eurozone over the debt crisis like everything else. If financial markets rally on another temporary solution then silver will stay up. If financial markets turn down sharply silver will probably fall harder than most, unless we have a crisis of confidence in money and that is why you should still hold silver.

$60 target

However, we still think the shiniest of metals has the brightest outlook for 2011 as we did in January (click here) and will finish the year back above the $50 spike of April and most likely north of $60 an ounce.

This confidence comes from an observation that the world’s central banks are flooding the financial markets with cash while at the same time more and more investors are noting that they cannot print silver and deciding to buy it as a hedge against monetary inflation.

At some point the purchasing of physical silver is going to overpower the obvious and blatant price fixing in the pits of the Comex in Chicago, and silver prices will soar to unimaginable heights.

Then we will be writing articles about the silver bubble and how long will it last and how high will it go. It could be that this summer is the type of 50 per cent correction sometimes seen in precious metals – gold prices halved in 1976 before going up eight-fold by 1980. But if so that really will be the buying opportunity of the decade.

-- Posted 29 June, 2011 | | Discuss This Article - Comments:

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