By Michael Lombardi, MBA for Profit Confidential
As gold bullion prices declined in the period from April to June of this year, so did silver prices. And just like gold bullion, the bullish case for the white metal’s prices continues to build.
Demand for the white precious metal is not just robust; it is rising. The chart below compares sales of silver coins at the U.S. Mint in the months of January to July of 2012 and 2013.
The demand for the precious metal is strong, having risen by 50% in the first seven months of this year compared to the same period a year ago.
Last week, Chris Carkner, the managing director of sales for bullion, refinery, and exchange-traded products at the Royal Canadian Mint, said, “Year-to-date, after the second quarter, we’ve had record (demand) volume for silver Maple Leafs, the greatest we’ve had in the over 25 years that we’ve produced them…” (Source: “INTERVIEW: Gold, Silver Product Demand Is ‘Very Strong:’ Royal Canadian Mint,” Kitco, August 14, 2013.)
Data Source: U.S. Mint web site, last accessed August 23, 2013
Looking at the technical picture, the chart below clearly shows the bottom in silver prices and the new upward-moving price trend.
Chart courtesy of www.StockCharts.com
Yes, prices for the white precious metal are down for the year, but after breaking below $19.00 an ounce, they quickly recovered and found support, as shown in the chart above. Unlike gold, silver prices tested the same support level ($19.00 an ounce) on several occasions, and they always bounced above that level whenever it was tested.
Have silver prices hit a bottom? Price manipulation aside, fundamental demand and technical analysis both make a good case for higher prices ahead.
My loyal Profit Confidential readers know I am bullish on gold bullion. I think the yellow metal will increase in value and move past its record 2011 high of just above $1,900 an ounce. When it comes to silver prices, I expect price gains from this metal to do much better in percentage terms.
For gold bullion prices to rise 100%, gold would need to rise to $2,800 an ounce—a price level we have yet to see. On the other hand, for silver prices to rise 100%, they would only have to move to $46.00 an ounce—a price level we already saw in 2011. And that’s where I believe we are headed again with the price of the white metal.
I see an opportunity for investors in the major mining stocks. Just like gold stocks, after the recent correction in precious metal prices, the senior silver miners saw their stock prices fall to lows not seen in years. And while the stock prices of the major mining companies have come back a little, there is plenty of value still left in this sector—especially for those producers who are able to take the white precious metal out of the ground at a low price.
Michael’s Personal Notes:
The Bureau of Labor Statistics reported last week that real average weekly earnings (that’s earnings adjusted for price change) in the U.S. economy declined 0.5% in July from June of this year. (Source: Bureau of Labor Statistics, August 15, 2013.)
But this is just the monthly difference in real wages. I tend to look at the bigger picture.
According to Sentier Research’s monthly Current Population Survey, real median household income in the U.S. economy is down 4.4% from June 2009. In June of this year, median household income was $52,098. In June of 2009, it was $54,478. (Source: Sentier Research, August 21, 2013.)
Going back further, in December of 2007, when the U.S. economy was “officially” recognized as being in a recession, the median household income was $55,480. Yes, almost six years after the Great Recession started, real median household income is still down 6.5%.
In the midst of all the false optimism about economic growth, one question is going unasked. The Social Security Administration reports that in 2011, 66.6% of wage earners in the U.S. economy had a net compensation of less than or equal to $41, 211.36, adjusted for price change. (Source: Social Security Administration web site, last accessed August 23, 2013.) This means that two-thirds of Americans earn less than the country’s stated median income.
Wages are the very basic phenomenon that drive consumer spending. So the question that’s going unasked is: can the U.S. economy really see economic growth when wages are declining? My answer: of course not.
The illusion of economic growth created by the stock market is just that: an illusion. If the U.S. economy was indeed witnessing economic growth, real wages would reflect this. Unfortunately, the decline in real wages will simply lead to a pullback in consumer spending in the U.S. economy—something many major retailers are already complaining about.
What He Said:
“Even the most novice investor can now read the chart of the Dow Jones U.S. Home Construction Index and see that it is trading at its lowest level in five years. If, like me, you believe that stocks are an indication of what lies ahead, this important index is telling us housing prices are headed to 2002 levels! What would that do to the economy? Such an event would devastate the U.S.” Michael Lombardi in Profit Confidential, December 4, 2007. That devastation started happening in the first quarter of 2008.