Profit from Silver's Sudden Weakness
Source: Motley Fool, Christopher Barker (5/3/11)
"Breathers in the metal's rising price can healthily help shake out excess speculation and leverage."
Investors who dipped their toes into silver for the first time as the metal's price spiked near $50 per ounce might be pretty terrified by its current volatility. But if they stay too focused on the commodity itself, they might miss out on an even better opportunity to profit from the folks who mine it.
First, don't panic about the ups and downs of silver prices. In an ongoing bull market like the one silver's enjoying now, occasional reversals or breathers in the metal's rising price can healthily help shake out excess speculation and leverage.
After all, ever since the COMEX futures exchange signaled a powerful short squeeze and a rare condition of backwardation, the long side of this market has gone into an absolute frenzy. Silver skyrocketed from less than $27 in late January to nearly $50, in just three months! As the metal's price approached the psychological $50 barrier, a slowdown became both likely and downright critical to long-term silver investors' interests.
Commodity guru Jim Rogers said it best: "I own silver, but if it keeps going up, it could turn into a problem if it goes parabolic." He continued: "I certainly hope silver goes down for a while. I say it as somebody who owns it because if it goes down, I hope I would buy more and if it goes up too much too fast, then I have to sell."
I agree wholeheartedly, and I welcome recent weakness, particularly in silver mining stocks, as an enticing opportunity to redeploy gains that I locked in along the way.
The market's way too bumpy to make any reliable short-term bets on which way silver's headed. Any investors who try to do so will likely get burned. Silver has arrived at a crucial crossroads that could drive serious near-term volatility in its price.