Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

Awaiting The Inevitable Correction In The Silver Price
The Daily Reckoningk ^ | 9-15-2011 | Eric Fry

Posted on 09/15/2011 5:14:04 PM PDT by blam

Awaiting The Inevitable Correction In The Silver Price

By Eric Fry

09/15/11 Laguna Beach, California – The International Can-Kicking Team is busy again today, as the European Central Bank, US Federal Reserve and three other central banks linked arms to kick the European debt crisis down the road until the end of the year.

Specifically, the Can-Kickers announced that they would provide three-month US dollar loans to European banks to insure that the banks have enough liquidity to make it to the end of the year.

If past scams of this nature are any guide, the “short-term” assistance will somehow morph into long-term or permanent assistance, funded by taxpayers. The markets are rallying because this scam “sends a powerful message,” according to one financial news source.

Message received: When all else fails, launch a massive bailout.

The markets will probably continue rallying a while longer, and the gold price will probably continue to retreat (just as Bill Bonner has been predicating). But the longer these counter-trend moves proceed — i.e. stocks up, gold down — the better the opportunities for forward-looking investors to re-weight their portfolios.

The recent selloff in gold, for example, is providing a glittering opportunity to add a little more weight to the precious metal sector. And as we mentioned in yesterday’s edition of The Daily Reckoning, gold stocks, rather than gold itself, seem particularly compelling at the moment.

Following up on this theme, we present the nearby chart for your consideration. First, the conclusion: Gold stocks are as cheap as they have been in a decade. Now the details: The chart below shows the price-to-EBITDA ratio of the XAU Index of stocks, both in absolute terms and in comparison to the price-to-EBITDA ratio of the S&P 500 Index. This ratio is a measure of price-to-cash-flow and tends to illustrate valuation more accurately than the more familiar price-to-earnings (PE) ratio.

In absolute terms the price-to-EBITDA of the XAU Index is currently around 7.5 times, which is only about 10% higher than the price-to-EBITDA of the S&P 500 Index. Both of these metrics are as low as they have been in a decade.

Obviously, however, “cheap” does not mean “buy.” Cheap stocks have a tendency to get cheaper, on the way to becoming way-too-cheap. Gold stocks are cheap, but they could still fall to way-too-cheap. Silver stocks, on the other hand, may already be way-too-cheap.

A Daily Reckoning reader named Kyle Sorgel makes the argument:

Within the precious metals sector, silver mining stocks may be the very best bet…

A consensus estimate of the total amount of silver mined from 3000 BC to now is about 44.4 billion ounces and for gold is about 4.25 billion ounces. This yields a gold-to-silver ratio of about 10.44, a far cry from the current gold-to-silver ratio of 45. In modern times, mines are pulling less silver out of the ground, relative to gold, than they did in ancient times. Total annual mine production of silver is only 8.6 times greater than total gold production. Furthermore, and most importantly, 53% of the total silver demand is used in industrial processes versus gold’s 11%. This means that every year 53% of the total supply of silver is USED UP, meaning it’s gone, vanished, disappeared.

Silver is an extremely versatile metal and as time has progressed science has found multiple uses in which silver provides a benefit that no other metal can provide (even gold). And since the silver is used in such trace amounts, most of it can’t be recovered.

Based on these facts, it seems inevitable that the large price disparity between gold and silver should narrow over time.

Mr. Sorgel’s argument is compelling. But please remember, dear reader, inevitable is not the same thing as imminent.


TOPICS: News/Current Events
KEYWORDS: commodities; gold; investing; silver

1 posted on 09/15/2011 5:14:06 PM PDT by blam
[ Post Reply | Private Reply | View Replies]

To: blam

*


2 posted on 09/15/2011 5:19:40 PM PDT by PMAS
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam

The price of gold and silver stocks must, without doubt,
have already factored into them the inevitable nationalization that will come about when the fiat money junkies loose, as they must, without doubt.


3 posted on 09/15/2011 5:20:22 PM PDT by nkycincinnatikid
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam


4 posted on 09/15/2011 5:23:47 PM PDT by blam
[ Post Reply | Private Reply | To 1 | View Replies]

To: blam

bookmark for later


5 posted on 09/15/2011 5:27:08 PM PDT by Repeal The 17th (Proud to be a small monthly donor.)
[ Post Reply | Private Reply | To 4 | View Replies]

To: blam

I’ll buy when it drops to $36/oz


6 posted on 09/15/2011 5:30:57 PM PDT by mamelukesabre
[ Post Reply | Private Reply | To 1 | View Replies]

To: mamelukesabre

It’s only dropping because I bought a little bit.


7 posted on 09/15/2011 5:34:35 PM PDT by Repeal The 17th (Proud to be a small monthly donor.)
[ Post Reply | Private Reply | To 6 | View Replies]

To: Repeal The 17th

oh, well...buy more please


8 posted on 09/15/2011 5:36:57 PM PDT by mamelukesabre
[ Post Reply | Private Reply | To 7 | View Replies]

To: mamelukesabre

Who has the lowest markup over spot these days? E.g. buying physical silver, not mining stocks.

Goldmart? Apmex? ...


9 posted on 09/15/2011 5:47:03 PM PDT by CapnJack
[ Post Reply | Private Reply | To 6 | View Replies]

To: Repeal The 17th

I own quite a bit so your killin’ me with your buying frenzy 17th! Stop please!!!


10 posted on 09/15/2011 5:49:11 PM PDT by bobby.223
[ Post Reply | Private Reply | To 7 | View Replies]

To: CapnJack
Looking for the same answer

I like Apmex except for the delivery charge, it matters when you are a small buyer

11 posted on 09/15/2011 6:00:06 PM PDT by silverleaf (Common sense is not so common - Voltaire)
[ Post Reply | Private Reply | To 9 | View Replies]

To: CapnJack
Looking for the same answer

I like Apmex except for the delivery charge, it matters when you are a small buyer

12 posted on 09/15/2011 6:00:08 PM PDT by silverleaf (Common sense is not so common - Voltaire)
[ Post Reply | Private Reply | To 9 | View Replies]

To: CapnJack

Check out Blanchard


13 posted on 09/15/2011 6:00:15 PM PDT by Seeking the truth
[ Post Reply | Private Reply | To 9 | View Replies]

To: CapnJack

Gainesville Coins is pretty good.

Check out the fine print and terms on all of them. Markup over spot price, bank wire vs. other forms of payment (credit card), etc.


14 posted on 09/15/2011 6:16:54 PM PDT by SnuffaBolshevik ("The trouble with internet quotations is that you don't know if they are true"-Abraham Lincoln.)
[ Post Reply | Private Reply | To 9 | View Replies]

To: silverleaf

I bought from Apmex before (when it was about $13/oz). But Goldmart so far has cheaper “over spot” price, but a $16 shipping fee for orders over $1000.

I’ll have to check out Blanchard.


15 posted on 09/15/2011 6:17:15 PM PDT by CapnJack
[ Post Reply | Private Reply | To 11 | View Replies]

To: SnuffaBolshevik

Sadly, I lost all of mine in a tragic canoe accident.

Have to start back at square one.


16 posted on 09/15/2011 6:20:16 PM PDT by SnuffaBolshevik ("The trouble with internet quotations is that you don't know if they are true"-Abraham Lincoln.)
[ Post Reply | Private Reply | To 14 | View Replies]

To: CapnJack

I’ve been using eBay but in this roller coaster market sellers can’t keep up with spot prices

I do like Great Southern Coin, shipping is “free” and can use PayPal, so already factored into the price


17 posted on 09/15/2011 6:27:44 PM PDT by silverleaf (Common sense is not so common - Voltaire)
[ Post Reply | Private Reply | To 15 | View Replies]

To: mamelukesabre

At this rate, you’re going to get it:

http://www.oilbull.com/silver-chart/hourly/


18 posted on 09/15/2011 7:06:23 PM PDT by bluefish (NoBama! Because Commies Suck)
[ Post Reply | Private Reply | To 6 | View Replies]

To: PMAS

What are the “multiple uses” of silver, aside from an investment?


19 posted on 09/15/2011 7:23:34 PM PDT by STJPII
[ Post Reply | Private Reply | To 2 | View Replies]

To: STJPII

Here’s Just One:

More than 150 million ounces of silver annually are used in the world’s chemical industry for the production of two compounds – ethylene oxide and formaldehyde.

http://www.silverinstitute.org/silver_uses.php


20 posted on 09/15/2011 7:39:43 PM PDT by bluefish (NoBama! Because Commies Suck)
[ Post Reply | Private Reply | To 19 | View Replies]

To: blam

The headline appears misleading. The term “correction” usually signals a decline in price, but the article is suggesting a sharp rise.

There are all kinds of rumors of short sellers selling paper silver contracts etc, suppressing the price.

I am ambivalent on the question, though, I would probably move into silver in a big way should it “correct” to the mid $20’s - having passed the chance to buy big in the mid single digits for, well, basically all of my life :-)


21 posted on 09/15/2011 7:46:13 PM PDT by monkeyshine
[ Post Reply | Private Reply | To 1 | View Replies]

To: CapnJack

Who has the lowest markup over spot these days?


Big quantities: tulving.com
Small quantities: Gainesvillecoin.com (or ebay)

No relationship, but Freeper tested.


22 posted on 09/15/2011 8:01:46 PM PDT by Atlas Sneezed (Are you better off now than you were four trillion dollars ago?)
[ Post Reply | Private Reply | To 9 | View Replies]

To: silverleaf
Great Southern has a great deal on 5# of pre 65 silver dimes quarters halves and dollars. Guaranteed not to have any nickels and pennies, free shipping.
23 posted on 09/15/2011 8:07:53 PM PDT by BooBoo1000 ("IF YOU DON'T HOLD IT, YOU DON'T OWN IT" ( Wise old Gold Bug))
[ Post Reply | Private Reply | To 17 | View Replies]

To: BooBoo1000
You could try Bullion Direct, or Kitko. Both very good suppliers/
24 posted on 09/15/2011 8:10:16 PM PDT by BooBoo1000 ("IF YOU DON'T HOLD IT, YOU DON'T OWN IT" ( Wise old Gold Bug))
[ Post Reply | Private Reply | To 23 | View Replies]

To: CapnJack

Sometimes its me. 10% sounds fair.


25 posted on 09/15/2011 8:12:34 PM PDT by eyedigress ((Old storm chaser from the west)?)
[ Post Reply | Private Reply | To 9 | View Replies]

To: silverleaf

Hell, if shipping is free and it’s Eagles BU, that IS a deal.


26 posted on 09/15/2011 8:14:38 PM PDT by eyedigress ((Old storm chaser from the west)?)
[ Post Reply | Private Reply | To 17 | View Replies]

To: BooBoo1000

Whatever happened with the raid on Kitco by the Canadian Feds a few months back. Some sort of tax fraud scheme they had going. Haven’t heard any more on it.


27 posted on 09/15/2011 8:43:01 PM PDT by bluefish (NoBama! Say No to Marxism!)
[ Post Reply | Private Reply | To 24 | View Replies]

To: BooBoo1000

Whatever happened with the raid on Kitco by the Canadian Feds a few months back. Some sort of tax fraud scheme they had going. Haven’t heard any more on it.


28 posted on 09/15/2011 8:43:11 PM PDT by bluefish (NoBama! Say No to Marxism!)
[ Post Reply | Private Reply | To 24 | View Replies]

To: bluefish

Oops, sorry for the double post. I made a BooBoo!


29 posted on 09/15/2011 8:44:40 PM PDT by bluefish (NoBama! Say No to Marxism!)
[ Post Reply | Private Reply | To 28 | View Replies]

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson