Is Silver A Safe Long-Term Investment

This week, and in fact the whole month so far, has shown very promising signs for silver prices. Not only has a significant barrier been breached, but silver seems to be forming a near term upward trend. However, given silver’s treacherous recent past, investors would like to see more in order to be convinced the white metal holds sufficient value as a long term investment.

So long as silver prices stay above this marginally “safe” barrier, there is really no fear of a silver market crisis or collapse. This seemingly far-fetched possibility nearly became reality on two occasions last year, as disappointed investors fled away from the silver market; specifics indicated that many of them never returned.

It is a big mistake to take the silver investment market for granted as it is not a self- contained entity that entirely absorbs silver supply. Investment silver accounts for less than 25% of total demand, while silver used for industrial purposes exceeds 50%, not counting jewellry. Industries “consume” gold according to their needs, paying any price the market asks for, and the cheaper silver is valued, the more flexible they could be in pricing their products.

At this point no private investor can claim they’re selling silver with a profit, even if they bought it 5 years ago or more, which certainly says a lot for the metal’s long term return.

Four reasons to be cautious with your investment in silver

  1. The standing position of many years about the relativity of gold and silver prices was profoundly defeated last year when silver lost almost 15% more of its value than gold did. This year, silver didn’t follow gold in its initial rally, neither did it serve as leverage to high gold prices.
  2. The average price of silver was $23 per ounce in 2013, a price that silver hasn’t reached so far this year, despite its short-lived leap at the end of February. If something big doesn’t happen soon, silver investment portfolios will lose more of their value in 2014.
  3. According to estimates, silver mining costs averaged at $21.39 per ounce at the end of 2013, and this implies that the white metal is currently trading at a price much lower than its cost of production. Despite last year’s 3,100 tonne silver supply deficit and expected increased demand this year, a predicted squeeze of the supply of silver on the market does not as yet seem to push silver prices higher.
  4. Based on the above factors, all analysts unanimously agree that we should be expecting an explosion of silver prices at any time. The GSR ratio is also mentioned, supposedly indicating that silver is very good value at these prices. Nevertheless technical analysis doesn’t reveal a strong positive trend, which for many investors could mean a lot.

Following gold’s footsteps as it has done for 2 weeks is not enough for silver to catch the investor’s eye. Going its separate way and breaking strong resistances is the only proof that silver has the potential to go higher.

In the weeks to follow, you keep your eye on the market and trust for a successful investment in sliver.