By MoneyMorning.com.au
Our old pal, Diggers & Drillers editor, Dr. Alex Cowie likes gold… but he likes silver more.
In fact, he’s got his sights set on silver clocking up a 525% gain in the next eight years. If you think that’s a crazy number, it’s actually one of the more conservative medium term forecasts we’ve seen!
If he’s right, that would take the silver price to USD$203 an ounce… more than six-times the current price of USD$32.72… or an annual growth rate of around 65.6% per year. Try getting that from stocks.
So, how does the Doc back up his claim?
Well, part of it is contained in one of the most remarkable charts we saw at the Daily Reckoning Doomers’ Ball last Friday. He also included it in his latest issue of Diggers & Drillers:
As the Doc wrote in his latest double issue:
“For years, industrial users of silver dominated the market. They used it for a wide variety of applications, like solar panels, electronics, photography as well as jewellery.
“But after big cracks started to appear in the financial system in 2007, the silver market started changing. Investors began muscling in to secure a bigger chunk of the market. In 2007 investors accounted for just 6% of silver demand. By last year this had increased fivefold with investors accounting for 29% of demand.”
Compare that to the latest numbers from the World Gold Council (WGC). The WGC notes that right now, industrial and dental use accounts for just 11.4% of gold demand. Jewellery accounts for 50.4%. And the rest – 38.1% – is used in investments.
By that metric, silver still has a way to go to catch up with gold. But once it gets there, we doubt the investor demand will fall back.
Of course, it’s important to remember (and the Doc admits this), silver’s journey from $32.72 to $203 won’t be a straight line. There will be plenty of bumps along the way.
As we see it, the silver price will react in the same way as every other asset that has burned investors. It will take a while for the disappointment to wear off, and then before you know it… whoosh; it’ll be out of sight.
Look at the five-year silver price chart:
While there are plenty of investors who bought between $10-$20. There are many more who bought between $30 and $50.
And the longer the silver price trades in the current range ($30-$35), the more disappointed they’ll become.
But it’s not all bad news. In fact, it’s great news if you’re looking to build up a position in silver over the coming years. Because you’re likely to get plenty of opportunities to buy at a cheap price as disappointed sellers keep the price down.
Quite how long it will take before this is worked out of the silver price is anyone’s guess. But we wouldn’t be surprised if prices stayed around this level for another year or more.
But longer term, the case for silver makes at least as much sense as the case for gold. For one reason: throughout history silver was used as everyday money – the U.K. pound sterling is so-called because it was measured in silver.
Ultimately, we’ll see a return to sound money. And odds are investors will use silver as a way to bet on that outcome. And as usually happens when investors bet on something, they go too far.
But the more we see events like this week’s central bank bailout, and commentators such as Bell Potter’s Charlie Aitken telling Peter Switzer in an interview…
“The only thing that can happen is the ECB will print money… don’t you want some inflation, some growth… of course you want the ECB to intervene. Look at [what] the Bank of England has done in England. They’ve stabilised the U.K. economy – stabilised – by money printing. What’s the Fed done in America? Huge scale money printing…”
…the more we’re convinced governments and central banks will intervene for years to come. That won’t be good news for most people as inflation eats away at their hard-earned savings.
But if you own gold you can expect to at least maintain your standard of living.
And if you also own a small amount of price-volatile silver, you should expect to improve your standard of living as we edge closer to (and the market bets on) the inevitable return to sound money.
Cheers.
Kris.
P.S. Dr. Cowie recently devoted an entire issue of Diggers & Drillers to the buying and storing of physical precious metals (including silver). If you’d like to find out how to buy and hold gold and silver… plus receive the Doc’s resource stock tips, be sure to check out the details here…
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Why the Fed’s Actions Make Perfect Sense
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Bailouts Still Boosting the Market
Was This Just Another Rigged Market?
From the Archives…
Stock Market Predictions
2011-11-25 – Kris Sayce
Stocks on the Australian Market Today – Three Things You Need to Know
2011-11-24 – Shae Smith
The Gospel of Gold and Silver
2011-11-23 – Kris Sayce
China’s Bubble Will Pop in 2012
2011-11-22 – Greg Canavan
ASX Stock Market Winners, Losers and the Newly Dumped
2011-11-21 – Aaron Tyrrell
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How to Profit from Silver with the Inevitable Return to Sound Money
