Sean Rakhimov: "Three-Digit Silver Ahead"
By Gold ReportJul 8 2008 4:26PMhttp://www.theaureport.com/
In this exclusive interview with The Gold Report, Sean Rakhimov explains why he thinks silver will rise like a rocket in the next couple of years. He also gives some advice on how best to participate in the coming silver boom. Sean is the founder and editor of Silverstrategies.com, a website dedicated to silver investing.
TGR: Where do you see the silver market going for the rest of this year and into 2009?
SR: Let's start with a little background. First of all, the silver market is very small relative to other markets and this introduces a lot of price volatility. Silver is also unique in that it is both an industrial and a monetary asset. It's easy to make quite a splash doing business as usual. In other words, the closure of a mine or opening of a new one can substantially influence the rest of the market. Silver happens to be one of the most versatile metals. Every year there is a continuous flow of new patents. In fact, silver accounts for more new patents for new applications than the rest of the metals combined. A few years ago digital photography was supposed to "kill" the silver market. Back then silver was $5 to $6, maybe $8. Every financial pundit, especially in the mainstream media, predicted digital photography would have an adverse impact on silver prices. Since then silver has tripled or doubled (depends on from where you're counting). I bring this up because it's similar to an equally important contra silver argument widely accepted by analysts and the media, namely, that silver is an industrial metal and not a monetary metal so it will behave more like base metals. Frankly, I find that argument laughable. The reality is that the monetary aspect of silver will dominate and carry it to astronomical heights in this cycle, which I expect to last another decade.
I try not to make short-term predictions since it is a futile exercise. Silver is too small and volatile a market with too many moving parts and relationships to base metals, economics, gold and who knows what else. Over the longer term, however, I believe silver will do spectacularly well. I absolutely believe we will see three-digit prices, perhaps over $200, and possibly over $300— as outrageous as it may sound right now. The looming financial crisis will be much more severe and prolonged than anything we can imagine. There will be a depression of sorts, especially in the U.S. and I expect silver to be one of the stellar performers.
TGR: Other than serving as a barometer of the financial markets, what will move silver into more of a monetary role?
SR: It's not the financial markets per se that will be the driving force. I think it’s going to be driven primarily by the man on the street trying to preserve his liquid assets—his buying power. He will not be reading analyst reports. No one listens to analysts in developing countries.
TGR: So you are not talking about the U.S.?
SR: I am talking about countries that have savings unlike North America, especially the U.S. I expect silver to make quite a run, perhaps on the magnitude of a double, probably within the next 18 months, pushing it up into the $30 range. When the silver price moves, it moves like a rocket. That is about the shortest-term prediction I can give you.
TGR: What’s causing it to stagnate now? It recently dropped down along with gold. Are we overly optimistic in the U.S.—putting our heads in the sand regarding what’s really happening in the financial markets?
SR: In the short term there could be any number of reasons—maybe 50—but a year from now we’re not going to remember any of them. We don’t remember the reason silver fell from $15 to $10 a year and a half ago and now it really doesn't matter.
TGR: Do you see silver paralleling gold or do you think it will eclipse gold in terms of its percentage rise?
SR: I got into silver back in 2000 because I figured that the place to be for the coming decades was the hard assets. Then I narrowed it down even more to gold. Whatever appreciation happens in the hard assets will be ultimately reflected in gold. It won’t be one for one, but it will eventually be the mean average.
Then I stumbled onto silver, realizing it offers you leverage over gold. It gives you everything gold gives you, only it will give you leverage in terms of the percentage of appreciation on your investment. That’s how silver became my focus.
Silver is definitely a monetary metal and will continue to be used as such if for no other reason than it can be saved and accumulated and stored. Gold and silver are also the most liquid. If you have a couple of rolls of—I don’t know—copper wire, it’s not an easy thing to dispose of. But you can take gold and silver to the bank or a coin dealer, or you can put it on e-Bay.
The other consideration is silver's relationship to gold. Silver often tracks gold and trades in tandem in terms of price. Yet the fundamentals underlying the two metals are quite different. As a monetary metal, silver has open interests in the futures market, similar to gold, which is many times greater than the physical supply of the metal. In that respect, silver is quite different from base metal. Base metals have futures markets too but the open interests in gold and silver are actually comparable to currencies as opposed to other metals. That’s another confirmation that the market views silver as a monetary metal. In good times, such as those prior to 2000, metals didn’t do particularly well. But, in bad times such as I see coming in the very near future, metals will resume the role of safe haven that they do so well.
While silver often moves with gold—both have recently been sold down severely—the amount of silver available to the market is actually less than the amount of gold available. Gold is for the big players—governments, big institutions, corporations—the big money. Silver, on the other hand, is for the average guy. And there are 6 billion more of these average guys than there are big players. In the past people used gold coins, silver coins, copper coins, and other forms of exchange. But the relationship between the gold coins and the silver coins was roughly 1 to 10 or 1 to 12, at times, 1 to 15 or maybe 16. That is a pretty strong relationship. Now, the reason for that is called "natural ratio". Essentially that refers to the ratio at which they come out of the ground. That is the ratio at which they occur in nature. The reason this is so important is that if we look at the price relationship of gold to silver, it will be roughly in the 50's. When I started studying this, the ratio was 100 to 1 in favor of gold. So, silver has outperformed gold by about 100% since 2001-2002.
There are many things to consider if you want to invest in silver. Some people do it for the insurance rather than to make a buck, so it can preserve buying power. Keep this in mind when you watch silver drop $1 a day or $5 a week. In the long run, I maintain that we will see three-figure silver prices. I believe that silver is very, very undervalued and has an extremely bright future.
TGR: Earlier you said: "Silver gives you more leverage than gold." Could you expand on that?
SR: That is undeniably true. The natural ratio depends on how much more gold is mined than silver; in some areas more silver is mined than gold, as is the case in Latin America versus South Africa. The natural ratio is in the range of 10 to 15 and it has lasted for thousands of years. I use the word “leverage,” not referring to leverage you get by buying, say, mining stocks or futures, or anything like that. What I mean by leverage is simply that there is less silver available, and it’s trading at a cheaper price relative to gold. Some catching up has to take place to revert to the mean of the historic price ratio. Leverage exists in silver's relationship to gold; so, if gold goes up 100%, I maintain that silver will do better than that over the longer term.