Silver market vulnerable
to a shakeout to $4
by Larry Edelson
Editor, Safe Money Report
For
nearly a year now, I've deliberately downplayed the silver market, concerned
that it was being manipulated by a handful of speculators. That's why I
advised subscribers to our Silver & Gold Report to focus almost
exclusively on the gold market instead. And that's why editor Martin Weiss
did the same here in Safe Money.
Now,
the facts are coming out into the open. Last month, it was disclosed that
the Berkshire Hathaway Fund -- investor Warren Buffett's primary investing
vehicle -- had accumulated over 129 million ounces of silver in the past
six months. The news helped drive prices to over $7 per ounce.
Since
the announcement, however, silver's fallen back to the $6.30 level and I
think it's headed much lower. How far? I think it could go as low as $4
per ounce. So, I strongly recommend that now -- more than ever before --
you avoid the silver market!
There Is No Shortage Of Silver!
Unlike
the gold market, silver is very vulnerable to manipulation. It's not an
official metal in the world's central banks. And reporting requirements
around the world for the metal are inconsistent and unreliable. So supply
and demand statistics are, at best, suspect; at worst, outright misleading.
For
example, Wall Street analysts keep track of silver inventories by monitoring
registered Comex warehouses and vaults. But with enough money, a speculator
-- working alone or with a group -- can purchase the metal in large amounts
and then hide it away in private, nonreporting vaults. To analysts, however,
it appears that the supply of silver has shrunk dramatically.
This
is exactly what Mr. Buffett has done. And he's not alone. I believe that
several other large speculators, plus a handful of brokerage firms, started
purchasing large amounts of silver last July and shipping it to London.
That
explains why reportable Comex inventories in New York dwindled rapidly,
falling 49%, while silver inventories in London appear to be piling up.
Problem: The Bank of England and the London Bullion Dealer's
Marketing Association do not require public disclosure of the amount locked
up in English vaults! So it's impossible to get a handle on what's actually
happening to total supplies around the world.
Right
now, several London dealers are complaining they're running out of storage
space, that they're "up to their eyeballs in silver." If this
is true -- and I have every reason to believe it is -- then there is
no silver shortage! Quite the contrary, according to my sources, there
may be up to 500 million ounces sitting in private vaults in London.
Expect A Sharp Decline In Silver Prices Soon
I believe
the jig is up for silver...and that a sharp decline lies ahead. Here's why:
Reason
#1. Mr. Buffett is not holding
the silver for a long-term play. I believe he's only in it for a short-term
speculation. On many occasions over the past few months, Mr. Buffett has
stated publicly that he believes the US economy is slowing considerably.
Moreover, he bought long-term US Treasuries based on his belief that inflation
is dead. These views are incompatible with a long-term position in the silver
market.
Reason
#2. Demand is dropping substantially
in India -- the world's largest consumer of silver. In the past few
months alone, demand in India has fallen as much as 30%. Reason: Silver's
recent rally -- combined with the Indian rupiah's 11% decline -- has caused
a 61% jump in the price of silver in India.
Besides dampening demand, current high silver prices in India are likely
to cause dishoarding, as investors in the area look to make some quick profits.
Reason
#3. Silver's price is out of
whack with gold. Gold is hovering near 18-year lows, while silver made
an 8-year high recently. The ratio between the two metals is completely
-- and artificially -- out of whack.
If the ratio just gets back to its 3-year average of roughly 74 ounces of
silver for every ounce of gold, silver would have to fall to $4 per ounce
(assuming gold's current price of $297). Or gold could rally to $465 to
correct the ratio -- but that much of a rise is not in the cards for gold
that fast. It's much more probable that silver will fall fast.
Here's what to do...
Right
now, silver's already slipped back to the $6.30 level. If it breaks the
$5.97 support area, I expect it will fall sharply -- to at least $4.50.
So, here's what I recommend:
1. If you currently have a stash of silver bullion, dump it. It's not worth the risk! I'll let you know when
the coast is clear and when it's time to load up. Until then, stay out.
The market is too risky -- and the manipulations aren't over yet.
2. If you own any silver shares despite our advice, dump them now. No matter how cheap they may seem -- companies
like Pan American Silver (OTC PAASF), Coeur D'Alene (NYSE CDE), and Hecla
(NYSE HL) -- could get hit very hard if silver falls as sharply as I expect.
So, there's no sense holding any of them. Sell them now.
In all cases, wait for my signal to get back in the silver market.
In
the meantime, focus your energies on gold: its outlook -- both short and
long term -- is far better. Accumulate more shares in Barrick Gold, Pegasus,
and Bema, at current price levels. Ditto for last month's recommendations
in Glamis Gold and Agnico Eagle." 3/98
Editor's Note: Larry Edelson is editor of the Save Money Report, P.O. Box 109665, Palm Beach Gardens, FL 33410. Monthly, 1 year, $148.
|| TABLE OF CONTENTS || Bull & Bear Newsletter Digest || Bull &
Bear Reporter Featured Companies || Monetary Digest |
| The Bull & Bear Financial Report Copyright 1999 | All Rights Reserved Reproduction in whole or part is strictly prohibited without prior written permision NOTE: The Bull & Bear Financial Report does not itself endorse or guarantee the accuracy or reliability of information, statements or opinionsexpressed by any individuals or organizations posted on this site PLEASE READ DISCLAIMER |
Web Site Designed & Maintained by Estrada Design & Communications in association with THE BULL & BEAR INTERNET DIVISION |