Silver fundamentals better than gold: Rakhimov

Silver fundamentals better than gold: Rakhimov
Silver price volatility provides some exciting profit opportunities for investors who develop the right strategies to take advantage of the action. The Gold Report interviews Sean Rakhimov

Author: Zig Lambo
Posted: Sunday , 04 Mar 2012


The Gold Report: You last talked with The Gold Report in January 2011 and at that time you gave us your view on the prospects for silver for 2011. What’s your analysis now as to what happened in 2011?

Sean Rakhimov: 2011 was a breakthrough year for silver. Last time we talked I think the title of the interview was “Silver Going Mainstream,” which I believe it did last year. The silver price did run up to $50/ounce (oz). It settled back slightly under $30/oz, and sometime around the end of last year and the beginning of this year I believe we put in a major bottom in both gold and silver. The markets have been looking up since then.

There’s been a bit of consolidation going on largely based on geopolitical events. It’s been my long-standing theory that the action in the metal prices is not necessarily determined on a day-to-day basis by the fundamentals of the metals themselves. It’s more of a reaction to the external news, whether it’s in financial areas, geopolitical or some other areas.

TGR: Do you think people are trying to figure out what they think other people are going to do, and then somehow profit from it?

SR: Yes, but in the case of gold and silver, I don’t believe the reasons or the information pertaining to the metals themselves are as dominant in the conversation as it is in some other assets. Gold and silver are the only markets driven by fear, and fear usually does not emanate from the metals, but from other areas. A lot of the other assets are driven by greed.

TGR: I know you don’t like to make specific price predictions, but you published an article at the end of October 2009 where you said that silver was going to hit a high somewhere between $30/oz and $50/oz. We did see the $50/oz price last year. At this point, what do you think it’s going to take for silver to break through that $50/oz barrier for good and establish that as a new base price?

SR: The catalyst, I believe, will probably be somewhere in the currency space, whether it’s in Japan, Europe, the U.S. or maybe even some other region that we don’t think of on a day-to-day basis. I view gold and silver as monetary instruments, at least at this stage, although silver has a great degree of industrial uses. I also think that we probably will see a new high in both gold and silver this year. For silver, that would be over $50/oz and for gold that would be somewhere in the $1,800-1,900/oz range.

TGR: How closely tied are gold and silver as far as price performance goes? Is gold going to drag silver up with it or can you see any kind of catalyst that would make silver go up on its own?

SR: As a rule, they move together. Silver does display a high degree of volatility and I believe its fundamentals are far superior to those of gold due both to its industrial usage as well as price. Silver is far cheaper than gold and a lot of investment has been switching over to silver. For instance, Sprott says it sells equal amounts of silver (in dollar terms) to gold, which means in today’s numbers, silver is selling 50 times more in ounces than gold.

So, I think silver has far superior fundamentals, and it’s definitely more affordable. It will take on a life of its own, and at some point, outperform gold significantly.

TGR: Lots of people out there have all kinds of opinions about where it may ultimately go. Do you have any outer limit expectations for it?

SR: I don’t, but if you look back at some of the early interviews I did with The Gold Report, I think I was among the first to say that I expect three-digit silver. That was when silver was definitely below $15/oz and maybe even below $10/oz. So, I was one of the early people who thought silver had far higher to go. Today, I believe that silver has at least a 10x appreciation potential from the current level. Again, being a monetary instrument, an awful lot is going to depend on what happens to other monies elsewhere. For the cycle, I don’t have a number target, but I do think that the gold:silver ratio will get below 20, probably closer to 10:1. It’s over 50:1 right now; so, that should be a good guideline.

TGR: That really gives it some upside potential from here. So, from a monetary standpoint, do you see the possibility that governments are gradually going to get serious about somehow making silver a part of the monetary system if gold goes in that direction also?

SR: I think some governments will at least attempt to. In Mexico, there’s been a long-standing movement at high levels of government to bring silver into the currency equation. I don’t know how that will shake out for several reasons. One, silver is not as plentiful as we think. I also don’t know how gold will come into that equation. I believe that if gold does take on the currency role again, it will be more in inter-government relations rather than day-to-day uses.

I don’t think we have enough silver, basically, to use it as a currency. With the paper currencies facing all these challenges, a new and better financial system will have to be developed. For a while, gold and silver may play that bridge refuge role until they sort out what the new system is going to look like.

TGR: So tell us what sort of strategies you’re using at this point to benefit from the current silver market and what you think is going to be coming up here in the next couple of years.

SR: Well, in terms of investment I have always advocated that silver metal is a good investment; so is gold for that matter, but I think you get a wide variety of experts on your website discussing the metals. I think investors would do better and will be better served if they spend some time figuring out exactly what their personal take or expectations or intentions are. I think the majority of investors don’t spend enough time on figuring out their strategy. Am I a long-term investor? Am I a trader? Am I looking for a tenbagger in the next year? Am I a high-risk taker? Do I want some stability (in my portfolio)? Do I want to be in blue chips?

I think those are very important questions and should be part of their thinking. A couple of years ago I made the case that we were entering the second phase of the bull market. This is the institutional phase, where investors would be better off if they followed the money, so to speak, and positioned themselves in companies and investments that institutions will come into.

The case I made was for companies that have established operations or assets and are kind of “out of the woods” in terms of if they’re going to make it, but their full potential has not yet been realized. The article is available on my website, and there’s a flow chart there that shows money flows the way I expect them to flow around. So, I think the midtiers or the up-and-coming producers or producers that are expecting a bump in their production would perform well in the current period. And I still hold that view.

The other strategy I employ is to find stories early, and then you either bet on the team or the asset or both.

TGR: Is there anything else you would like to mention or just leave some parting thoughts?

SR: Generally speaking, though, with silver, we are probably somewhere midway through the cycle and have another 10 years to go. Investors should constantly revisit their reasons for being in this space and what exactly they are looking to get from it. I think there’s nothing to worry about in the volatile price action. Silver is about the most volatile asset that you can be in. Other than that, I think it is up and up from here.

TGR: That’s a good, positive outlook. Thanks for speaking with us.


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