Thursday, April 2, 2015

An Interesting Moneyweek Article on Silver

Readers here know that I have mentioned that silver can be a good thing to include in a portfolio for someone who wants to have an emergency cash fund. I wrote a blog article explaining why silver might work best for the average person for this purpose. 

This article in Moneyweek also talks about buying silver. My interest in the article is to illustrate a reason not to buy silver though. The author of this article says he has been a long time silver skeptic, but found himself buying in what he hopes will be a short term trading gain. I don't give investment advice so I don't care what anyone invests in as a rule. However, I think silver works a lot better for a different purpose for most people. Let's look at it. Below some quotes from this article, then a few comments.

"If you’re a regular reader, you’ll know I’ve always been quite cynical about silver.
I do get the ‘silver story’: the need for it is growing every year; the further technology and medicine advance, the more new applications we find for silver.
Better yet, regardless of whether it’s in electronics, optics or biotech, silver is used in such small quantities that the silver price doesn’t really affect the economic viability of the products it’s used in.
So people aren’t going to stop using it, even if the price does shoot up. It is essential and unique.
And even demand for silver jewellery is rising, thanks to the growing Chinese middle classes.
Meanwhile, on the supply side, miners are struggling to make existing deposits work, let alone find new ones. Funding for lead and zinc mines (where silver usually occurs) has gone the same way as Jeremy Clarkson’s BBC career. It all points to a potential shortage of silver."
. . . . 
"And yet, despite all this potential and more, silver never quite delivers anything more than frustration to those that own it. Once in a generation it soars to $50 an ounce – then it collapses, and you’re back to waiting."
. . . . . 
"So why, on Friday morning, did I find myself buying silver?
I have a simple trading system, based on charts, that I use in my short-term trading account. The system has absolutely nothing to do with fundamentals. It is based on price action alone.
I try to trade the system without thinking. My thinking, I find, tends to get in the way, so I have trained myself not to do any.
Sometimes the trades work, sometimes they don’t. I have a disciplined risk-management system in place for the times they don’t work."
My added comments:
The main point to make from this article is that this type of short term investing is absolutely not why I mentioned owning some silver here on the blog. I have no problem with anyone short term investing in anything they want. It's just not why I would suggest silver as something to consider owning.
On this blog we are trying to identify and assess the possibility of major systemic changes to the global monetary system. The idea is to understand what the real risks to the system are and then make some kind of plan to deal with another major crisis if we do get one in the future. Obviously, any plan like that would include having some kind of emergency savings fund in order to deal with possible disruptions in the economic supply chain or the inability to access funds electronically temporarily. Even if we do not get another major systemic crisis, having an emergency fund is a good common sense idea for anyone who is able to have one. Adding a silver component to that fund makes sense because in a major crisis event, precious metals will always have value and be accepted in trade. In a crisis, precious metals tend to hold purchasing power very well historically. For most people, silver is more affordable than gold (which probably works better for central banks and high net worth individuals).
In the case of silver, it also has some longer term supply/demand fundamentals (which were mentioned in this Moneyweek article) which suggest that silver acquired at the lower end of its recent price range is probably a pretty low risk thing to hold long term. The odds are pretty good that silver will be higher 10 or 20 years from now than it is today even if you never need it for a crisis situation. So, on that basis, I think owning some silver that can be held long term (that you are not forced to sell to pay bills) makes sense as part of an emergency fund for those who can afford one. I wish the author of this article well in his attempt at a short term trading gain, but that is not the reason silver is mentioned here on this blog. Here it is viewed more like owning a long term insurance policy. And by no means do we offer any kind of investment advice here.

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