By: Cullen Roche – May 31, 2011
Like myself, Richard Russell had been vocally skeptical about the parabolic surge in silver prices. But he isn’t a believer in the silver theory. Russell says the recent correction is healthy and he feels as though the recent consolidation is setting the stage for the next leg up. In his latest Dow Theory Letter the investment legend explained why he’s bullish again about silver:
“Silver – According to the Constitution of the United States, only gold AND silver are money. Silver is a lot cheaper than gold, and for a while the “crowd” rushed in to buy silver as a “safe haven substitute” for gold. Silver turned into a speculative bubble, and when the bubble broke, silver suffered a crushing drop from a price of 49.75 to 32.
I wrote that silver’s upward post-crash correction might surprise most silver-haters and silver shorts. As I write, silver has rallied to above 37. The bull market in gold is still very much intact, and I believe gold will take silver UP with it.
Remember I said that during recessions, silver is treated as an industrial metal, but during periods of inflation silver is treated as a monetary metal. With inflation built into America’s future, I see silver following gold to higher levels. And I see the public once more rushing in to buy silver as a safe-haven currency against a shaky dollar.
Below I include a daily chart of silver, going back two years. Like gold, silver seems to respect a 150-day moving average, which I have drawn on the chart (blue line). Also, note that silver is still severely oversold, as per RSI.”
“Confession – I had sold much of my silver prior to the big break (I didn’t like the parabolic action of silver and the accompanying public excitement), but I have changed my mind about silver.”
All Things Considered – John’s Commentary
Action to take: I have always liked silver. Many long-time investors believe that silver will outperform gold in this bull market which is slated to last 5 to 10 more years.
It is easy, however, to become so enamored with silver that judgment can become skewed, leading investors to overweight too heavily in silver. I personally tend to overweight in silver at times, as much as 60/40 or 70/30, but no more.
Silver should provide greater returns, possibly far greater returns. But, what if for some unforeseen reason it does not? We can believe wholeheartedly in metals, but within the sector we should exercise prudence and diversify.
Quote of the day: The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice.” – Henry Hazlitt, libertarian philosopher & economist of Austrian school (1894- 1993)
