A Different Perspective on What Drives Silver Prices

Guest Essay by Isaac Kahan

My name is Isaac Kahan, a silver and gold merchant for nearly 25 years. I own a successful gold and silver wholesale business selling metals to manufacturing and casting companies. The net result is that most of the jewelry made in the U.S. is manufactured with my metals.

Over the last few years, the market for the manufacture of jewelry has been exported beyond the borders of the U.S. Earlier this year, with the value of gold and silver going up, my company began to receive thousand of ounces of gold, as well as gold and silver coins for refining.

The response was so extensive that we began melting most of the coins in order to pay for them. Shortly thereafter, I decided that a wise business decision would be to position myself in the retail market and begin to sell these coins at a better value. This allowed me to place better bids for these goods. While I was well under way creating my web site, www.bulliontradingllc.com, there was a perceived shortage of these coins in the market, inevitably causing the available supply to dry up.

I am skeptical of this supposed shortage, and believe the perception of a shortage was been caused by several possible factors. I am aware that it is now difficult to find these coins and bars since thousands have been melted by my company and by my competitors as well, but in the past, if I was ever in need of large quantities for my customers, such as grain or large bars, there has always been a ready supply.

I compare the perceived shortage to going to the grocery store and asking to buy a box of 9 eggs. The grocer will tell you that eggs are only available by the dozen. This does not mean there is a shortage of eggs, rather the form you are looking for is currently unavailable.

I believe that readers with some market-sense are aware of the main reasons that gold and silver value should once again prevail in the coming year. They include:

  • Devaluation of the dollar due to the financial bailout.
  • Foreign investors have been getting burnt and the US should soon start providing relief to US held products, increasing the US dollar’s decline.
  • Gold has been proven to be the best investment of the year and the public will get wind of this, surely influencing more investment dollars into metals.
  • Investors should increase investments into metals since it has been long accepted that 10-20% of investments should be in the metals market.
  • Hedge fund money, commonly used as a means to diversify from the direct correlation of the stock market, is being asked back. These money holders will still be using this money for risk diversification and what better outlet than metals?

The Benefits to Owning Silver:

I believe it to be market-savvy to own silver. As a trader, I have been trading more silver than gold, for several reasons. Mainly because silver moves about 2-3 times faster than the same amount of gold, resulting in more bang for your buck.

I have used several different methods of trading in the silver sector of the metals market. The method I have been using for the longest period of time is called the CCI. This method, which I hope to inform the readers about through my blog, is actually correlated to the closing price of the Dow. It has been my conclusion, through the observation of the stock trends and activities, that when the Dow increased based on any number of given market conditions, silver increased in value as well. This alone should be a good reason because it illustrates a win-win situation for silver.

One the one hand, if gold were to increase and the Dow were to decrease, silver would  at least tag along with gold, not allowing for a depreciation in value. On the other hand, if the Dow increases, so should silver, since this has been the indicator for quite some time; hence the win-win situation.

Of course, given the current market fluctuations, we all need facts, reassurance, and tested logic behind our decisions. Fortunately, our resources are endless via the internet.

The question on your minds may be why silver, in fact, performed poorly this year. First, one has to realize that in the begining of 2008 gold went over $1000 and silver increased to over $20. Given that, gold then began to decline to below $700 whereas silver had a much harsher decline, reaching about $9.00. Keep in mind that the Dow was also taking a strong hit during that time as well.

My theory is rather simple.  There are only 3 possible scenarios for silver. First, if gold holds up its value, or if the Dow becomes level and ceases to decrease, silver should begin to rise, exponentially. Second, if the Dow begins to rise, it will surely influence silver to do the same. (I plan to address the industrial metal issue at another time.) The third and final scenario would be if both gold and the Dow were to decrease simultaneously, which is a highly unlikely possibility.  In the rare event that this does occur, it should not have an affect on silver since it has already declined, in relation to gold. Essentially, silver should once again gain its strength and provide investors with a sound possibility for successful investing.

About the company: Bullion Trading LLC accepts orders of any size and processes orders using the spot price. Bullion Trading LLC only sells from their active inventory and only stocks in-demand grain, coin and bar products. Come visit us & see for yourself at: http://www.bulliontradingllc.com/index.php