I’ve been warning you about silver’s volatility and unpredictability.
Last week I noted that surging silver prices in response to supply constraints from China and Mexico as well as concerns about war in Iran were not to be trusted.
Any news at all, good, bad or ugly can and will push silver in a direction that seems to make no sense over the short term.
But predicting short term prices is a fool’s endeavor. Even professional traders fail to do so consistently.
Consider silver’s price action since the US and Israel began bombing Iran.
Silver dropped nearly $10/oz in a span of 24 hours.
Silver bulls are now apoplectic. Why would silver drop AFTER the bombs fall?
As some folks might point out, there are something like 500 ounces of silver in each Tomahawk missile. That’s ~$44k worth of silver per missile at current prices. The US Dept of War reportedly has something like 4,000 Tomahawk missiles in reserve – containing about 2 million ounces of silver worth $176 million.
And it’s not exactly recoverable after the missiles are fired…
But consider, even if all 4,000 Tomahawks were fired, 2 million ounces is a drop in the bucket of annual global silver production, which tops 1 billion ounces.
The headline of “500 ounces of silver per missile” gets attention and makes people think the silver price must therefore surge.
But it’s just one of many factors, most of which you can’t get an accurate bead on in a timely enough fashion to be useful.
You’ll drive yourself crazy trying to figure out why silver or gold’s price moves the way it does over short time frames. Even if you had perfect data, you wouldn’t know what every buyer and seller is thinking before, during or after the price move.
Maybe in time you can formulate a compelling rationale about why prices moved the way they did over the past few days – but by then, it’s not useful information. You can’t know if the next round of bombing will have the same reaction.
The solution to trying to get your arms around short term price movements is to simply shrug them off – and to take a longer view of the market.
Specifically: look at companies with leverage to the price of silver and gold. Many of these firms are drastically undervalued. Very few of them barely caught up to the moves we saw in metals prices over the past 6 months.
Some of these firms are now selling at discounts to where they were in January of this year!
I’m tracking the world’s best silver companies in my GP10X service, and one of them is still selling below its January 1st price.
Whatever happens next in Iran will surely move the price of precious metals. We can’t really know the details. But we can look at high quality businesses in the mining sector and tell if they’re selling at a good price or not.
Most of them are still screaming deals.
The news will have people dipping in and out of positions at the worst times for the worst reasons.
Don’t fall for it.
Keep your eyes on the horizon – and where we are headed.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio