A Silver Lining That Could Double Your Money

Over the past week, George Soros and Goldman Sachs bashed gold and silver.

I was asked about this while I was a guest on CNBC Asia last week. While it surprised me to see them tip their hand, it was more than likely a strategy to push these two precious metals down and create an opportunity to buy at a lower price.

Back in March 2011, silver hit $48. At $23.49 earlier today, it’s now less than half of that peak – but Goldman and Soros clearly believe it’s on the way back, and are almost certainly attempting to take advantage of the current negative sentiment surrounding precious metals.

Going against the grain is often the smartest strategy out there. Take for instance, oil’s crash from $148 down to $33 per barrel. I remember I had guys on the desk telling me that oil was going to $10-$20 a barrel; others said, “Oil is never coming back.”

You see, it’s easy for anyone to get sucked into prevailing sentiment. Back during the tech boom when the Nasdaq was at 5,000, none of my broker friends would cash out of any of their positions – but that would have been the right thing to do.

But long-term “buy and hold” definitely doesn’t work in an asset bubble. There is always a crash, and Nasdaq Internet and tech stocks still haven’t reached their former levels.

The same was true for real estate, which went through its own bubble and in the five years since its burst, it still hasn’t returned to its former levels.

Bitcoins were the latest bubble. I commented on my Facebook and Twitter pages that I hoped no one had invested in Bitcoins, because it was obvious they were ready to pop.

Well, they popped the next day, crashing from $260 per Bitcoin to the $70s in just a few days.

People think silver is also a bubble. And it’s true that the commodity did get ahead of itself, which is why I gave a sell recommendation to my subscribers, but it was no bubble.

Why I’m Finally Bullish on Silver Again

Today, things are different. No one sees a day when silver will rise again.

Silver may have got ahead of itself back then, but the underlying forces that created its run remain in place and will continue to support silver over time.

First, the major central banks of the world keep expanding their balance sheets, strategies which devalue currencies.

For instance, the Bank of England has been the king of balance-sheet expansion, increasing its balance sheet through QE by around 330% since late-2008, which has utterly crushed the pound.

So the risk to paper currencies is greater than ever.

The Money Sloshing Around Out There

In the U.S., thanks to the Fed-driven money printing fiesta, the amount of money in circulation is now at an all-time high of $1 trillion. And there’s plenty more to come and the perils of rising inflation continue to loom.

For example, a 1913 dollar is worth four cents today. That’s how much purchasing power the greenback lost in a century, thanks to inflation.

We can tell by a long-term chart of the CRB Commodity Index that since the creation of the Federal Reserve in 1913, inflation has been on a steady upward slope. Prior to 1913, commodity prices were generally pretty flat, as the chart below shows.

Here’s Why You Struggle to Make Ends Meet

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Coming off the gold standard in 1971 ensured a new volatile rise in commodity prices would continue.

That means that savvy investors should own assets that rise along with inflation. Precious metals are a good option – and given its current position, my choice would be silver.

Silver’s drivers are still in place, and because no one wants silver right now, it’s a great contrarian play.

I believe silver offers great risk-reward right now, which is the final reason it’s a buy.

You can see from the weekly, seven-year chart below that the silver ETF (SLV) is near a long-term support at around $25 per share. Additionally, there’s more long-term support around the $19-$20 level. Check it out below.

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Bottom line… the same drivers that pushed silver to $48 in 2011 are still around today. Back then, it just got there too quickly to be sustainable.

However, now that it can begin from a higher starting point and has built a base of consolidation, it could easily shoot back up to its former highs within the next 24 months.

If it does, that would be around a 100% return. So I believe it’s well worth owning SLV.

Have a nice day!

Sean Hyman
Editor, Commodity Trend Alert