Silver: The Beginning Of A New Trend

In this interview with Sean Rakhimov, editor of SilversStrategies.com, the current market action is being discussed. Rakhimov believes that once the $26/ounce price point in silver will mark reversal of the ongoing downward trend. Once that silver price breached, silver investors should set their sights on the next resistance level—$32/ounce. And if that threshold is breached, silver will test $50/ounce and more. Furthemore, silver miners should be well positioned to ride this trend perhaps several multiples higher.

The interview was conducted by The Gold Report.

In early June we started to see stronger precious metals prices and that has carried through. Is this a trend?

Rakhimov: It is the beginning of a trend. Precious metals characteristically start going up after a prolonged decline, yet early in the reversal they rarely inspire any confidence because the last dozen or so similar moves fizzled after a 10–20% move. This could be one of those. Silver is at $21 per ounce ($21/oz) now, maybe next week it will test $18/oz again. It’s anybody’s guess but I believe that toward the end of the year we’ll probably see higher numbers—maybe substantially higher.

Is there a telltale sign that shows investors that this upturn is real?

Rakhimov: There isn’t one that I use. It’s more of a gut feeling.

The existing silver fix mechanism expires on Aug. 14, 2014, and methods to replace it are currently being reviewed by the London Bullion Market Authority. Is a new silver fix system likely to yield stronger silver prices?

Rakhimov: It’s likely. This new replacement for the silver fix would, at least for the next year or two, have less tinkering with it than had historically been going on with the fix. On that basis, the price should become more volatile. On balance it’s probably going to be positive for the silver price.

What are your thoughts on the silver space?

Rakhimov: In this semi-stealthy firming up of silver instruments and investments, there is not much fanfare. Silver is certainly out of favor at the moment, which leads me to remember that it’s always darkest before the dawn. And I believe that this is going to reverse itself in short order.

Lately I’ve been thinking about some passages from the thinly disguised biography of Jesse Livermore, Reminiscences of a Stock Operator by Edwin Lefèvre He wrote, “There’s a lot of early bulls in a bull market.” I’ve been an early bull in a bull market for precious metals going back to the early 2000s. Many people exit along the way but Livermore’s idea was that investors have to stick with it for the entire cycle. That’s what I’ve been telling myself. Of course, convictions are tested along the way, such as during the last couple of years.

Silver is a little like water in that if you tell people you should invest in water, the first thing people do is look at you like something is wrong with you! Yet fresh drinkable water is a scarce resource. Silver is so familiar that it lulls people into this idea that it’s not important. Unsophisticated people align it with gold, yet the fundamentals for the two metals could not be more different.

In April 2011 silver almost reached $50/oz before undergoing a dramatic correction. Investors’ knees would surely start to wobble if we saw those prices again. How would you play those kinds of price gains?

Rakhimov: It all depends on the character of the move. Investors have to look at the volume, speed and market sentiment in order to determine the direction at that point.

What does the next leg up in the silver price look like?

Rakhimov: My outlook for silver for the next two or three years is somewhere between $50 and $100/oz. It could be shorter; it could be longer, but that’s not critical. I’m going to stay with it for the cycle; it could be another 10 years to the end of the cycle. I do not expect this next leg to be final but I expect it to be a substantial run comparable to 2010–2011 when silver went from roughly $10 to $49.50/oz. The next move could go from about $20 to roughly $100/oz, but that will take time. Am I going to take money off the table along the way? Maybe in some stocks that got ahead of themselves or that are not responding to the price move. But I would not touch any of my physical silver.

What are the next three key resistance levels for silver?

Rakhimov: I think $26/oz will confirm that the trend has reversed. If we exceed $26/oz on good volume and strength, then we’re off to the races. From there, the next resistance level would be $30–32/oz. If we reach beyond that level, it becomes $50/oz. And if we take $50/oz convincingly, then there’s a good chance that this move is going to have some serious legs.

The Performance Report on SilverStrategies.com monitors 27 silver equities. Since early June, 26 of them are up, some more than 40%. June is typically a soft month for precious metals equities. What’s supporting those bids?

Rakhimov: One thing is a possible top in the mainstream market. Another is that precious metals are up roughly 15% in the last month or so and stocks usually have an exaggerated move versus the metal price. And most of these stocks are coming off depressed levels. There was something of a vacuum so stocks tend to jump even on low volumes. Most of the sellers who wanted to sell did. On the flip side, it doesn’t take a lot of money to acquire a lot of stocks. Again, this behavior is typical for the beginning of a larger move.

What makes silver special?

Rakhimov: If there is one adjective to describe silver, it’s “indispensable.” There are no adequate replacements. It is an extremely versatile metal, perhaps the most versatile in the periodic table. Silver can do a lot of good, too. For instance, it is being used more and more in medical implements that come in contact with the human body because silver kills bacteria in single-cell organisms. Silver is also used in the food industry to preserve and process foods like meat and dairy products.

But long before silver was improving our health and food safety, it was the world’s currency. The word for silver is synonymous with money in 52 languages.

Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing