Silver Going Mainstream in 2011 - Sean Rakhimov

TGR: We're going through a bit of a correction in the price of price in the first week of 2011.What's your view on what's happening?

SR: This correction couldn't come soon enough. David Morgan and I were expecting a correction in the low $20s about three or four months ago and it didn't happen. But that's the way bull markets work. They don't often act the way you anticipate; it's very difficult to call the timing on these moves. However, the correction is a very welcome development. I think this correction is going to be a very treacherous one—maybe down to about $25. It may be volatile; it may be steep; but it should be short-lived. It's very difficult to call these things in the silver market, which is very small and in which individual players can actually move the market in the direction they desire. But after this correction, I expect silver to reach new highs in 2011.

TGR: Does that mean you're selling silver now?

SR: No, it doesn't mean that. You can play these moves if you are a trader, but I'm not. I'm a long-term investor. I never sell silver. I may trade some stocks, but that is not usually related to a current sentiment; it's more about the stock itself. But I do not sell silver as a strategy. We're in a bull market, and the way to play a bull market is to get in and stay in.

TGR: On SilverStrategies.com, you recently published an article titled Why Governments Will Buy Silver. If things progress as you suspect they will, government-sponsored silver buying could add further momentum to the bull market you just talked about. Could you discuss that premise with us?

SR: Yes. I tried to make the case for why I think governments will come into the silver market and be very prominent players, if not dominant players, in a way that's not too different from the situation in the gold sector, where the Central Banks became net gold buyers.

In the gold sector, developing countries—the ones with the cash—have been turning their paper assets into gold. I expect something similar will happen in the silver sector for a couple of reasons. One reason for this is monetary. Another is that some of these players could be priced out of the gold market. And the other reason that I outlined in the article is silver's use as a strategic metal. It's one of the most versatile industrial metals out there.

I think governments will try to secure access to certain resources, and silver will be on a list of commodities or metals that will be highly sought after. For example, silver is very important in energy production. It's also very big in electronics. Governments may not care about silver's use in consumer electronics, but they are likely to care about electronics for military use. If governments don't have silver in the quantities they need, that may pose some challenges to countries without ready access to silver. Countries that don't mine silver have to buy it in the market and then wait for delivery. And the physical silver market is especially tight right now.

TGR: How long will we have to wait before we see that happening?

SR: It is difficult to say, mainly because the playing field is changing on a weekly basis. One day Greece is out of the woods. The next day it's not out of the woods. The day after, it's falling over. There are questions about the European Union; there are questions about the U.S.; questions about currency depreciation. There are so many moving parts it's very difficult to say when a government would enter the silver market.

That said, there is nothing indicating that it has not already happened. For instance, the Chinese government is encouraging its citizens to invest in silver. And a good number of governments mint coins in countries without silver mines. That means they have to buy the silver in the market, if they intend to continue their coin programs.

TGR: If governments come into the sector, and there are already silver supply issues, what influence would that have on silver demand?

SR: That is actually the most intriguing part of my premise, because it would send a message to the market. It would make silver so much more visible and important. It would add to silver demand, and maybe cement silver's position as a strategic metal. But aside from the demand side of the equation, it's the sentiment. It's the perception that governments would ultimately send to the markets that I think would generate waves of interest in silver.

TGR: You talked in vague terms about what silver will do in 2011.In early January, the gold:silver ratio was 46.2:1.Where do you expect that ratio to be by the end of 2011?

SR: This is where you probably can't pin me down. I don't like to make specific predictions, mainly because it's a bit of a loser's game. I mean, gold could reach $2,000 overnight if some war breaks out or some currency fails. Precious metals are geopolitical assets.

What do I expect? I published an article at the end of October 2009 in which I called for the next move in silver to register a high somewhere between $30 and $50, and we have met the lower end of that range. I still believe the next stop is likely to be that nominal $50 high. As far as the gold/silver ratio is concerned, I believe silver will continue to outperform gold. When I started looking at silver, the ratio was around 82:1. Now it's below 50:1. By the end of the cycle, I expect it to be below 20; and there is a 50% chance that it will be below 10. But I don't expect this cycle to end in the next couple of years, so that's definitely not going to happen in 2011. If anything, 2011 is going to be the year that will make silver mainstream. We should see fireworks from both gold and silver, but in relation to each other, I expect more on the silver side.

TGR: How long do you see this bull market running?

SR: It's difficult to say. Commodity cycles usually run about 20 years. Arguably, we're about 10 years into this one, so in loose terms, we may have another 10 years left. However, silver and gold are monetary assets, and we're looking at a currency crisis of epic proportions. We may have to rebuild the entire financial system. Who knows how long that would take or when it's going to get underway? Is it going to be the failure of the euro? Is it going to be the failure of the U.S. dollar? Is it going to be something else? We don't know.

What we do know is that gold and silver are money. Unlike other types of money, the value of these metals is historically proven and universally accepted. Gold and silver will play a prominent role in whatever new financial system is established. And I maintain that in real terms, these metals will go up in value.

TGR: What's your silver investing strategy? Tell us about your silver portfolio.

Read the full article at: Silver Going Mainstream in 2011 - Sean Rakhimov