The silver value has soared to its highest silver spot price in three decades. So what is the outlook for silver prices, the preferred profit strategies or favoured profit plays for the rest of the year? Well it depends on which expert you talk to.
The silver price per ounce rose above $42.00 in mid-April, a 31 year high. That is up 32% for the year so far and more than doubled since last September. The question many are asking is where is it going from here, and how should one position themselves?
The consensus from many of the market professionals is that the long term outlook for silver is still bullish. But that it is currently over bought and a pullback maybe even back to $30.00 may happen. Most seem to agree that silver is likely to run up to a high of $50.00 by the end of the year, the bearish outlook says that it may take 3 to 5 years to get to $50.00.
If you look at the silver gold ratio over recorded history you find it to be between 16:1 and10:1. At 16:1 and a $1500 current gold price would indicate silver is under valued and should be trading closer to $92 per ounce. Why aren't we at that level? Either gold is overpriced or silver is under-priced or the world has changed. I believe it is the later.
Many of the current investors are looking to silver bullion as an inflation hedge, but that is really only part of the story. Not only is silver undervalued versus gold, but silver is a hedge with an industrial kicker. Silver is used in thousands of industrial processes and is in high demand. More than half of the silver being produced today gets used up buy industry. We've all seen the uses for silver continually grow in this electronics age. Thirty years ago we had a twenty year supply of silver above ground for industry. Today that supply has dwindled to less than a year's supply.
Something's wrong here, and the only explanation I can see is some kind of government or central bank manipulation has been happening for many years. That could be good for silver investors because when corrections do take place, they inevitably over shoot the equilibrium mark by a considerable amount.
There is another issue driving gold and silver prices right now that many are not aware of: gold and silver are in high demand by nation states. This is a game changer. The CPM Gold Yearbook reports the aggregate total of the number of ounces of precious metals bought or sold by nations worldwide. Since the early eighties governments have been selling. In 2008 it was predicted that 5 million ounces would be sold in 2009. The 2010 CPM Gold Yearbook shows a net purchase of 15 million ounces. This is an indication that governments worldwide are starting to distrust the value of the American dollar. And this doesn't include some countries such as Iran and China who don't report their actions but who are rumoured to be buying large quantities.
Finally, silver coins have become the "common man's metal". If you are you are looking to buy precious metals and your choice is between gold at $1500 per ounce and silver at $40 per ounce, most people are going for the $40 because it appears to be a bargain.
So has the silver chart shown that silver has moved too far too fast? Some are expecting a major pull back in price before continuing on to test the 1980 record price of $50. Others look at the 1980's record price and adjust the price for inflation and see that the spot silver price needs to go to $130 per ounce in order to equal that record. So there could be a long way to go yet, without even taking into account of the world financial situation today. I don't plan on selling any silver bars or silver bullion coins any time soon.
By Lee Coates
Silver investing is the investment that is in fashion now, but what about the longer term? Do you want to be the next automatic millionaire ®? A free 45 min webinar showing how anyone of average means just like you can become a millionaire, Click here to watch the webinar. You can also check out my blog for more wealth tips.
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