by Al Doyle for CoinWeek .....
Summer tends to be a slower-paced time in the bullion market, and 2012 has been no exception to the general rule so far. With everyone from major metals traders to small-scale retail silver buyers spending time outdoors and vacationing, the pause in the action is hardly shocking.
Silver has been less volatile this year as compared to 2011, when the metal peaked at $48.70 on April 28 with a bottom of $26.16 on December 29. It's far too early to say that 2012 is going to be a more stable time for silver, but a plunge that has kept spot prices well below $30 in June does raise a question: Is the metal a good buy in the $27 to $29/ounce range?
"We are telling our customers 'If you don't have exposure to precious metals, it would be wise to do so,' reports Allan Beegle of Liberty Coin Service in Lansing, Mich.
"We think silver has more upside potential than gold, but it's also more volatile. Depending on your tolerance for sometimes massive price moves, we advise buying more silver than gold, but some people can't take the volatility."
Wayne Miller of Helena, Mont. made no effort to conceal his opinion.
"I think these prices are terrific," he declared. "We have probably reached the lows for this cycle. The lows for silver usually happen around June. Prices typically go up in September. One reason for that is all the buying by goldsmiths and silversmiths in India for the products they make for weddings and religious festivals. In addition to filling orders, I'm buying silver for inventory."
Don Keopple of Ace Coins in Moline, Ill. is another market veteran who views silver in the high $20s as a buying opportunity.
"I think these are good prices," he said. "People who buy now should do fine in the long term. I think the low point for silver will be $25 to $26. We could see silver at $35 to $40 by the end of the year."
One factor to consider in evaluating silver is its fluctuating price ratio as compared to gold. This is a relatively recent phenomenon, as the gold/silver ratio seldom moved out of the narrow range of 13.5 to 16/1 until the 20th century. The current spread of 58.3 to 1 is well above the historic mean, but far below the record 102 to 1 ratio that existed briefly in 1990.
Silver bugs point to this as a major buying opportunity, as the traditional ratio was based on the amount of physical gold and silver available. Those who disagree often think of silver as more of an industrial metal rather than a monetary asset and hedge against economic misfortune.
"The gold/silver ratio is way out of whack," Miller said. "It's almost half as cheap as it was last year when silver peaked. I've had a huge uptick in the number of people looking for gold and silver."
One popular silver product has been the best value in the market for years, but those days of low premiums way be winding to a close.
"Ninety percent [circulated pre-1965 dimes, quarters and half dollars] is harder to come by, and we're paying bigger premiums to acquire it," Beegle said. "This is the first time 90 percent has been wholesaling above melt for awhile."
"For awhile, the highest wholesale buys on 90 percent were 80 to 90 cents an ounce under spot, but it's over spot now," Miller said. "That's because silver in the $20s is stupidly cheap with all the economic factors that caused silver to rise to $48 and gold $1800 still existing. One example is Stockton, California declaring bankruptcy."
"There are very few people coming in with silver to sell at these prices," Keopple observed. "It's not a big wave or the same frenzy as last year, but we've had some decent transactions lately. There's a lot more silver going out than coming in over the counter ."
So why aren't more investors taking advantage of current prices? Blame human nature, as no matter what the price of silver is at any given time, there are always procrastinators who say "I'll buy when it hits X." That wishful figure is always somewhat lower than the current level, and it represents a major blind spot and incorrect assumption.
Daily spot prices are merely paper indications that aren't always in line with the physical (translation: real world) market, and those ever-changing figures can be manipulated in the short run. When spot plunges or when there is heavy demand for bullion, expect to pay somewhat more than spot to get your hands on the real thing.
"When silver last fell below $10, you couldn't buy it for less than 20 to 40 percent over spot," Beegle said. "We view precious metals more as insurance than as an investment. We tell our customers to have physical product in their possession."
"When silver was $37 three months ago, I had three investors call and ask about buying silver," Miller said. "I thought a decline was coming, so I told them to wait until silver fell below $33. None of them have called back yet. These guys are missing an opportunity."