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John Thomas graduated with a bachelor’s degree in biochemistry with honors and a minor in mathematics from the University of California at Los Angeles (U.C.L.A.) in 1974. He moved to Tokyo, Japan where he was employed by a medium-sized Japanese securities house. Thomas became fluent in... More
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  • Silver Looks Cheap 2 comments
    May 8, 2009 04:33 PM

    Take a look at the chart below and you have to wonder if silver is going to break out of its recent tedious range to the upside. The trigger could be a selloff in global stocks from their recent heady nine week run. The metal is at the low end of its historic valuation relative to gold, which has ranged between 12:1 (Remember the Hunt Brothers?) and 70:1m and is currently 65:1. Geologically, silver is 17 times more common than the yellow metal. All of the gold ever mined is still around, from King Solomon’s mine, to Nazi gold bars in Swiss bank vaults, and would fill two Olympic sized swimming pools. But most of the silver mined has been consumed in various industrial processes, and is sitting at the bottom of toxic waste dumps. Silver did take a multiyear hit when the world shifted from silver based films to digital photography. Now rising standards of living in emerging countries are increasing the demand for silver, especially in areas where there is a strong cultural preference, as in Latin America. That means were are setting up for a classic supply demand squeeze. I think we could run from the current $13.70/ounce to the old high of $50/ounce in the next economic cycle. Since silver can trade with double the volatility of gold, this forecast could prove conservative.
     

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This post has 2 comments:

  •  
    Hey MHFT, you forgot the chart! But I agree that silver is relatively cheap, as are agricultural products.
    2009 May 08 08:06 PM Reply
  •  
    Cheap is relative. Agreed, based on historical gold/silver ratios, the short term play would seem to be silver. Keep in mind that silver is a game and gold is money. That being said, in the competitive devaluation race of all fiat money, the eventual goal of the race is ZERO value, going to need silver to make change. Keep the gold for the larger acquisitions. LOL...got gold?
    2009 May 08 09:07 PM Reply
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