(This guest post comes courtesy of The Mad Hedge Fund Trader)
If you missed the great run up in silver last year that saw prices run up 95%, you are being offered a second bite at the apple. The latest round of risk reduction by global hedge fund has bashed the white metal, knocking $5 off of the $19.50 high seen in the heady days of November.
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 during the nineties.
Now rising standards of living in emerging countries are increasing the demand for silver, especially in areas where there is a strong cultural preference for the jewelry, as in Latin America. That means we are setting up for a classic supply demand squeeze. I think we could run to the old high of $50/ounce in the next economic cycle, if another monetary crisis doesn’t get us there first. Since silver can trade with double the volatility of gold, this forecast could prove conservative. You can buy the futures, where a 5,000 ounce contract worth $80,700 on the COMEX carries a margin requirement of only $6,750. You can also buy one ounce American silver eagle .9993% pure coins, but make sure you have a big safe to accumulate a serious position.