The long-term picture of the silver price

The silver price is well-established in its up-trend which started in October 2001 and accelerated from July 2003 onward to reach a bit more than $8 by April 2004 when massive profit-taking pushed it down to  the $5.50 level at which a clear buying opportunity emerged.

By fall, the silver price was back to $8 only to succumb to profit-taking once more. It fell back to the up-trend-line and another buying-opportunity was presented.

“At  present, the silver price is again in a consolidation phase and it may take a while before a new buy signal is flashed. Nevertheless, we seem to be getting closer to the next important buying-opportunity.”,  we wrote on August 20 when the silver price was a $ 6.99. The week after, the silver price in fact dropped to $6.75. At that point, many silver enthusiasts saw the silver price dropping further, having broken and up-trend line. But as it turned out, it was an ideal entry point as the silver price started to move up – 22% till now.

The silver market being very volatile, it is hard to say how far the silver price will jump this time. Nevertheless, looking back to 2004, best thing to do is ride the trend and put trailing stops in case there is a sudden reversal of fortunes.

A long-term investor may simply sit out any corrections.

The medium-term picture of the silver price

The short-term picture reveals an overbought situation, one that in the past has always signalled an opportune moment for taking profits. How much is really too much is difficult to ascertain but the higher the silver price moves, the higher the risk of a painful correction.

If you know how to sell at the top, by all means do it. Otherwise take your profit and wait for the next opportunity.

Our favourite silver shares

(%-value changes reflect the performance since our first recommendation.)

Silver shares do not look particularly overvalued at this stage. Many remain in fact below their highs reached a year ago as the chart of Western Silver below makes manifest.

Should the silver price remain at the present level or even move higher, silver share prices will follow and discount the fact the most silver companies can sell the silver they produce well beyond cash cost.

Above list contains a selection of different types of silver producers and explorers. Please refer to our reports to select the one that fits your risk profile.

If you wish to read our reports on above companies, please register at www.pzim.com.

Fundamental Considerations: THE RISING SILVER DEMAND

Silver is unique. Its natural beauty is legendary. Its range of applications is exceptionally broad. As a precious metal, it has been a source of human adornment since the beginning of time. As a principal component of fine tableware, appropriately called silverware, it has served as an important utensil for fine dining for centuries. As a light-sensitive element, it has revolutionized preservation of memories in the form of photographic images. More recently, its unique properties comprising of anti-bacterial qualities, corrosion resistance, malleability, ductility, reflectivity and conductivity have opened new possibilities for a myriad of other industrial applications.

Supply versus Demand

Over the past ten years, supply of silver (mine production and silver scrap) has increased by 26% while demand (total fabrication) expanded only by close to 10%.

While estimated total silver bullion inventories have fallen dramatically over the past ten years, the decline will likely be a lot less spectacular as the flattening curve above also suggests.

Mine production will most likely increase more rapidly as the demand through industrial applications.

Silver reflects! The film coating on mirror backings is silver. Mirrors are used in telescopes, microscopes, spacecraft and solar panels, as well as bathrooms! Don't forget the silver transparent coating on double-pane thermal windows.

Silver conducts heat! Those silver ceramic lines fired into your car's rear window keep the window clear of frost and ice.

Silver conducts electricity! Silver is the metal of choice for switch contacts because it does not corrode. Every time you start your microwave, dishwasher, television set, car engine, etc., silver contacts complete the electrical circuit. The same thing happens when you tap the keys of your computer keyboard, adjust your car's power seats, or release the power trunk lock. Silver is there.

Silver kills bacteria! Silver chemically affects the cell membranes of bacteria, causing them to break down. Bacteria do not develop resistance to silver, as they do to many antibiotics. Silver solutions are used in burn treatments. Silver gauze packs the wounds of patients during transport to medical facilities. Silver nitrate drops are used to clean the eyes of newborns. Hikers use portable silver-based water purification systems for drinking water.

Silver rings! Silver has a pure acoustic resonance and is preferred by musicians for making high quality silver bells and musical instruments.

Silver captures images! Silver salts are the basic image capture and forming materials in photography. Every picture of your sweet little darling contains silver, as well as medical/dental x-rays and your favorite movie.

Silver is pretty! Don't forget the silver in your jewelry or traditional tableware. It's a favorite medium because it is soft and malleable, and can be shaped into any form. Silver has been used in cherished heirlooms and gifts for centuries.

Back in 2002, whether you bought silver or copper, the result would have been much the same which to many may come as a surprise, copper being mentioned almost daily in the media. Silver, when it moves, moves fast. We my well experience some surprises to the up-side.

Silver and Commodities

It may also come as a surprise to many that silver and commodities (including energy) have moved in tandem since 2001 suggesting that indeed we are in a commodity bull market which may last many years as some knowledgeable experts have forecast.

The recommendations were valid at the time of writing, viz. at

and may no longer be valid at the time of reading.

The assets of THE TIMELESS PRECIOUS METAL FUND, Malta (EU), are invested in silver shares up to 30%.

THE TIMELESS PRECIOUS METAL FUND

is a shareholder in most the company listed above and will benefit from any increase in the company’s share price.

Peter Zihlmann

www.pzim.com  

www.timeless-gold.com

Contact: invest@pzim.ch

+41 44 268 51 10

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Disclaimer:  P. ZIHLMANN INVESTMENT MANAGEMENT AG does not accept any liability for any loss or damage whatsoever, that may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in the trading recommendations or in any accompanying chart analyses, whether communicated by word, or message, typed or spoken by any of its employees.

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