Sunday, September 25, 2011

Silver Bubble Finally Pops

I have been pounding the table about the dangerous silver bubble for a long time. With the 25% decline back below $30 last week, I think we can say now that the silver bubble has popped.

My first post about silver was in January, when the price was crossing $30 for the first time. My two most conceptually important posts about silver, both in late February with silver at about $33 were the one about the precious metals boiler room and also the thought experiment about why nickels would outperform silver in every conceivable scenario.

The silver bugs would get hopping mad about these posts, which was all you needed to know about who owned the metal and how weak their hands were. I probably got more comments on my silver posts than everything else I have written in five years combined.

Longer term, I am really glad that silver is going to get cheap again. The ideal opportunity would be if sometime next year you could short a 30-year Treasury bond yielding 3% and use the proceeds to buy silver at or below the marginal cash cost of mining. Although, it's possible you will want to buy the mines themselves since the mood of miners will be pessimistic, as they will regret topticking the metal price by starting so many projects.

By the way, there is going to be an pretty astonishing amount of silver coming out of the ground. When I did my survey in April of silver miner investor presentations, it was all photos of projects under construction and bar charts of growing silver production.

No comments: