The Silver Bull Market Is Over

Includes: SIVR, SLV
by: Mark Thomas

If you’re a silver investor, we didn’t write this to convince you that the right thing to do right now is buy or sell silver; it is just to share some of our investing experience with you so maybe you can learn from an event that happened early in our investing career. Also, we feel so responsible for having been such strong advocates for buying silver that we explain why we have so dramatically changed our views so quickly.

No one was more disappointed by the events in the silver market than us. We expected silver to remain in a nice steady bull market for the next 12-18 months. We were hoping the parabolic phase would begin when it was around $75, and that it would take it to $120. However, the market never does what you need it to. After months of research and hard work -- and properly applying and making the largest, fastest investment gains of our 21 years of investing, it was a brutal decision to come to the conclusion to abandon silver.

In the last few months, we literally bet all of our capital on a big move in silver. However, we learned long ago that investing is like cooking; if you stay too long and the food burns, it is ruined for good.

You can screw up the best investment ideas and trades of your life because of your ego. Your inflated brokerage accounts, and easy money you made not from physical but mental work, can taint your judgment and ruin your objectivity. Your ego will tell you you’re right and the world is wrong. Since you had been so right, your natural instinct will push the contrarian nature of thinking.

However, let me tell you a story about one of my first investments that taught me a hard lesson about being stubborn. In late 1992, I bought shares in MGM Grand (NYSE:MGM) when it was constructing the then-largest hotel casino complex in Las Vegas for a staggering (at that time) $1.1. Billion. I bought the stock at around $29, and it steadily rose as the planned opening approached.

Then all of the sudden it skyrocketed to about $54 before opening. I had run the numbers and felt the stock could be worth $65. Because I had been so right when it started to fall back, I didn’t sell a share -- and it fell all the way back to $24. I then held the stock for about 18 more months and sold at around $34. The last 18 months were the most painful, because I knew it was my fault.

Now we will move on to why we think the bull market in silver is over. The reason we have so drastically changed our mind about silver is a change in investment demand that we think will occur going forward. We simply think that the new investment flowing into silver will now fall dramatically from recent levels.

Silver was in a positive feedback loop, where rising prices attracted more investors, who purchased more silver and physically-backed silver exchange traded funds. This, along with a large short squeeze, removed more and more of the available silver from the market, which caused prices to go higher and higher.

Now, for the first time in months, there is overhead resistance from people who have bought higher. Also, the market is now vulnerable like it hasn’t been in months. Of course, we could be wrong about this, but our experience over 21 years usually serves us well. So from now own, we prefer gold -- and don’t want to own any silver at all going forward.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.