We Have a Breakout in Silver Prices!

For the past three years silver has been trading in a range between $9 per ounce to the high of $15.20 per ounce in 2005. As I write this article on November 6, 2007, we have now broken out of this trading range in silver. Silver is now approaching $15.50 and should be on its way to $20-$22 per ounce within a short period. Silver is way under its all time high of near $50 per ounce in 1980. However, it is very doable that it could see and break that all time high next year.

One reason to challenge that all time high of $50 per ounce is due to the ratio divergence between silver and gold. Back around 1980 when gold was $800 and silver was near $50, there was a ratio of 16 to 1 ratio of gold to silver which is a historical average. Today we have a ratio of around 53 to 1 of silver to gold with silver trading only around $15.40 and gold around $825. Now there are debates whether it is relative that there needs to be a ratio. However, even from a technical viewpoint on a 3 year chart, we could easily see a double in its value from here. And from there the all time high could be challenged.

There are several factors besides the technical viewpoint why silver will continue to go up. You can read more about it from my article in May 2007, "Is Silver Outperforming Gold?"

Now, that I gave you the green light on silver, here is the yellow light to watch for when a short term or intermediate breather will come into play. The reason we have gold and silver making new highs is due to the fact that the dollar is making new lows. The effect of a lower dollar is producing new all time highs in oil. All these are related and here is why.

Oil is paid with dollar currency and the price has to go up to compensate for this. The reason the dollar is going down is due to the Fed lowering interest rates. There could be an additional acceleration downward if we hear foreigners are selling their dollar assets. Therefore, the canary in the coal mine to watch for is a new trend reversal in the dollar and oil. When that reverses, then gold and silver will reverse downward also. However, most forecasts show that we will see a lower dollar next year and higher oil prices.

You can buy silver at a local coin store. However, do shop around. They will vary. You want to buy local because it is too costly to ship due to the weight. You save more if you buy and sell at the same store. Also, do not ask for a special request in how the silver is given to you, otherwise you will pay more. In other words, when you buy their inventory it is cheaper. They do charge a commission for buying and selling. You can monitor the silver spot price at www.kitco.com to get an idea of what price silver is being traded. To give you an example of what a fair price is for commission. I pay 40 cents per ounce to buy and 25 cents per ounce to sell silver. The bad part about buying silver is the number of units you have to hold in comparison to gold. You will need to find a secure place to store it like a safe.

With the holidays coming around, think about putting an ounce or two in your children's stockings. I did that last year, and it was a big hit.