Monday, April 25, 2011

Silver Nears $50

Today, the price of silver nearly reached $50 per ounce.  This is right around its all-time nominal high reached in 1980.  The run in silver over 3 decades ago became a bubble.  It all collapsed with a series of events, including Volcker's Fed stopping the crazy money creation.  This also collapsed the gold price in dollars during that time.

After reaching a high of over $49 in early trading this morning, silver pulled back a little.  It is showing high volatility at this point, with huge gains made in just the last couple of months.  If you don't have any silver or silver positions and you are looking to enter the market, now is a risky time to do it.  Silver will probably go above $50 soon, perhaps this week, and it may have further to run in the near-term.  But it has gone up really far and fast and you should not be surprised to see a significant pullback.  Whether the pullback will start at $50, $60, or some other number, is hard to say.

Although the U.S. dollar is depreciating significantly due to the Fed's monetary inflation (now QE2), it is still wise to hold some cash on reserve.  It is always good to have some liquid money and you should have some on hand for pullbacks.  If silver ends up pulling back to, say, $40, then it will be a great opportunity to accumulate some.

On the other hand, if silver continues running, you might want to consider taking a little in the way of paper profits.  If you have a big position in silver or silver investments, then it might be time to consider a slight reduction in your position to lock in some paper gains.  50 dollars is a milestone and somewhat symbolic, so maybe that is the magic number to consider locking in some gains.

I still see the longer term trend being up for gold and silver.  Silver will be far more volatile.  You will get greater gains during the run-ups, like now.  You will also feel the pain more in the pullbacks with silver.  Until the Fed stops creating new money and the DC politicians are forced to address the debt, then precious metals will do well.  You should always hold a core position in your portfolio of gold and gold related investments.  I recommend 20 to 25%.  Silver is more speculative, but having 5% in silver may be a good idea.  With your speculative money in precious metals, remember to take some paper profits on the run-ups and to buy on the pullbacks.  We will continue to see fierce volatility due to the uncertainty of the dollar.

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