Todd Stein & Steven McIntyre
So, after a quarter of a century, silver finally returned to double-digits. While we aren't fans of following day-to-day moves, the recent zoom past the $10/oz mark is noteworthy. It seems that the precious metals community is anticipating the launch of the silver ETF - so perhaps this is what is causing the grey dog to bark. Maybe that's the case, but we certainly don't think that abnormal amounts of bullion are being gobbled up by Barclays in anticipation of the ETF's launch. Nor do we think that the public is suddenly hoarding silver.
What is interesting to us is that the mainstream media and average investor have no idea what is going on. CNBC has a ticker in the morning that includes some commodity prices, but silver remains absent. Web sites such as MSN and Yahoo spit out headlines about Google, retail sales, and oil - it is only on rare occasions that gold is mentioned and that is when the price breaks $400/oz or $500/oz. Even the commodities sections of major financial web sites seem to ignore silver. For example, we can find nothing about the recent strike at Penoles, the second largest mining company in Mexico. Compare this to a hypothetical strike at Exxon, which would make top headlines.
A little more than twenty six years ago, when the silver market was being cornered, the general public started to wake up. At the very top, there were news stories about average people taking their silverware in to be melted. While we are not anticipating a repeat of early 1980, it is logical to think that the bull market will not end until we see the public paying attention to what is going on.
The combination of miner unrest in Mexico, increasingly radical leaders being elected in Latin America, and the silver ETF is adding more fuel to the already bullish fire of silver supply/demand. As with any asset that has had a huge run in a short period of time, a meaningful correction could occur at any moment to shake out the weak hands and momentum players, but we think that continued annual supply deficits of silver will not go unnoticed by the mainstream investing public for long. Oh, and we haven't even mentioned the ticking time bomb that is the U.S. Dollar and how its looming decline will almost certainly add a great deal of investment demand to gold and silver at a time when silver supply and inventories are very limited.
March 3, 2006